BlackRock rips page from hedge fund playbook, applies it to ETFs
BlackRock is applying hedge fund strategies to its exchange-traded fund business.
Jeffrey Rosenberg, senior portfolio manager on the firm’s systemic fixed income team, has a leading role in the firm’s ETF wrappers of liquid alternative ETFs that use a long-short strategy.
He argues that the strategy provides valuable diversification amid the recent deterioration in the relationship between stocks and bonds.
“An old old adage about fixed income is: ‘When my stocks go down, my bonds go up.’ We went through a period in March where there was a risk of war, and we clearly saw again that this was not valid. And I really saw that in 2022,” Rosenberg told CNBC’s “ETF Edge” this week. “The whole post-Covid environment has really challenged the fundamental tenet of the 60-40 portfolio, which is that bonds are diversified.”
According to Rosenberg, client demand for liquid altcoin ETFs is increasing because there is a desire to diversify your diversifiers.
“We are bringing techniques that we developed on the hedge fund side of our business, focusing primarily on market-neutral, long-short investing,” he added. “This is the key kind of ‘a-ha moment’ for ETF investors to realize that most of their exposure in the ETF ecosystem is some form of beta exposure.”
Rosenberg is a portfolio manager on two BlackRock liquid alt ETFs: iShares Systematic Alternatives Active ETF (IALT) and iShares Managed Futures Active ETF (ISMF). As of April 8, the firm’s website shows IALT is up almost 8% so far this year, while ISMF is up about 5%.
“What liquid alternatives bring to the table is the ability to move away from just market orientation and look at other sources of return,” Rosenberg said.
He highlighted a major challenge investors face on the stock market side.
“Our capital portfolios are becoming more and more dominated.” big, big-cap tech winners,” said Rosenberg. “This concentration means loss of diversification on the equity side and loss of diversification value. “So liquid alternatives can solve both of these challenges in portfolio construction.”
‘When the market jumps, something will zag’
VettaFi’s Todd Rosenbluth sees liquid altcoin ETFs as still an emerging category.
“Overall, this is still relatively small compared to traditional equity. [and] “It’s traditional fixed income, but we’re seeing advisors look for something to zag when the market zigzags,” the firm’s head of research said in the same interview.
