BlackRock's Jacobs on Active ETF Push

Let's talk about Belt. You take a look at the portfolio managers. One of them is Alistair Hibbert, who if I remember correctly, he manages one of Black Rocks largest hedge funds. So what does it say that you have one of your hedge fund guys managing an ETF over you know in the I shares franchise? It's really about taking our world class managers and bringing them into the structure that is increasingly the vehicle of choice, particularly among advisors amongst our IAS and and even more narrowly amongst model managers that are building ETF models that they can scale and make repeatable to their clients. So this is just about matching great managers with a great vehicle. Sounds like BlackRock believes that in, in the whole star fund manager idea. Absolutely. I mean, we have plenty of great managers across our platform. We brought out a Rick Reed or ETF bank last year, which has brought in 3 billion in assets. We're bringing out the Alistair Hibbert product. We've brought out a Tony Dispirito product investing in value stocks. So it's really about taking those managers that yeah, in many cases they've established great funds and great performance in the mutual fund structure. Now bringing them into the ETF. Now obviously we commit with that beta adjusted fee demarcation line, which is a little like my equals MC squared. Do you guys find the same thing when you talk to people that you either have to be cheap or shiny, whether you're active or passive? What we want is differentiated alpha that if you are going to go into an active manager, you want to be getting something different and you want to have a real edge within that difference. So when we look at Belt, really we see clients using this as a barbell approach. Get your low cost, broad tax efficient, super liquid IVV exposure in your core and then barbell, that was something that's going to give you a little more alpha on the side. So yes, yes, I mean in the sense that we want to have that active share, absolutely. Did you get the idea from my chart? No, no, this is about bringing out alpha strategies into an ETF. You just tell them yes. I feel like that would really, I do think an important thing here. You're just saying no. And I think in a part of what we do look at is active share. And So what we look at with Belt is that this is 80% active share. This is very different from the S&P 500. And that's important to us. We believe if you're going to create this barbell, you can get that cheap IVV exposure, but you want something different. I think that's so interesting that high active share, because if you take a look at recent launches across the industry, not just BlackRock, it feels like ETFs, the active equity ETFs have been getting more and more concentrated that if you're going to take a swing, it might as well be a big swing. And with that in mind, you think about a product such as belt, I mean, how much of an allocation makes sense when you think about a holistic portfolio? Oh, we've seen 10/15/20 percent. And, and the reason I can, I can say this is there's another, another fund, this is a little bit differentiated, but Alistair Hibbert also runs a mutual fund, the BlackRock Unconstrained Equity Fund. And we've seen people allocating at that 10/15/20 percent level in their equities. So people get really comfortable with this barbell. What it really comes down to is how do you want to manage tracking error? This is a high tracking error. Strategy IV is basically zero tracking error. It's tracking the S&P 500. So how do you want to kind of control those two levers to manage your active risk? If this were passive fund, you'd have a rebalancing frequency of probably once a quarter or maybe once every six months. How often does Alistair Hibbert change up the stocks in the portfolio given that it's a pretty small holding in terms of 2025 names? Yeah, very infrequently. So turnover is less than 20% annually in this in this portfolio, we expect that your average position is going to be held for over five years. It really is a long term unconstrained equity fund. The idea is how do you pick stocks today that have powerful moats around them with established businesses that are going to compound earnings, have structural tailwinds behind them and fiscally conservative management teams to really compound and grow those earnings over the long term? All right. And let's look at another one you launched, which is BBHY or BRHY, sorry, which is an active high yield bond ETF. This makes a lot of sense to me. If you look at the numbers, high yield managers really do a lot better beating the benchmark than active equity managers on on the whole. So I see that this one's a little less active share, right? You hold 800 high yield bonds, HYG holds 1200. So you're not that concentrated, but your fees lower at 40 basis points. So that sounds also like it's similarly looking at that line that we just showed. Yeah, and this is an example of taking a strategy that exists very substantially similar in the mutual fund structure today, which is the BlackRock high yield fund and bringing it out in an ETF. It's the same portfolio managers, same objective. So it's really bringing that strategy into the ETF structure. Eric, what I think you'll appreciate is just how much a lot of our active strategy is driven by models. So if we look at the last few years from 2021, about one in five models allocated to active ETFs. Now it's one in three. So you're seeing a lot more models allocating to active ETF's and the average position to active ETF's and those models has grown from about 2 1/2% / 6%, some more models allocating to active and bigger positions and active going forward. Well, I want to talk a little bit more about Black Rocks overall active strategy. Of course, we're talking about these two recent launches. BlackRock has been more actively launching active funds. But if you think about the universe overall, I mean, active ETF's are so far dominated by JP Morgan Dimensional Capital Group. It's not an area which BlackRock dominates, which is pretty rare in the ETF world. So what are Blackrock's ambitions in this space? Do you want to be #1? Absolutely. And this is really about building our active offering in the ETF structure to complement our active offering that exists in mutual funds and SM, AS and CIT. So really, when we go to clients, we have a full complement of strategies across different vehicles. We've grown it substantially Just over the last year. We've about doubled our active ETF offering from around 20 funds to now 40 funds and we're 25 billion in assets. So we are really investing in the space to bring out the right vehicle for our clients. Are you seeing the growth in active ETFs come in any way at the expense of your passive products? No, no, the passive products continue to grow. Well, the asset management space to, you know, generally continues to benefit from new money flowing into it. I think what's great is you see investors shifting from picking individual stocks to buying ETFs. So that's people going into passive and active. You see the growth of models, which is really systematizing exposure to ETFs, whether it's indexed and active. So this isn't either or this is really both passive and active growing together. OK, 60 seconds Ether spot ETFs are with the SEC. They're probably going to be approved soon. When are they coming out and how much marketing firepower are you going to put behind this? Well, I can't talk about filings that are with the SEC today, but what I can say is we've been thrilled with the launch of IBIT or Bitcoin ETF. We've raised over $20 billion in that fund since January of this year. I think what it's highlighted is just tremendous appetite for digital assets in the ETF vehicle. So just like we were talking about active making its way into the ETF vehicle as a vehicle of choice for digital assets, it's solving being able to buy it in your brokerage account sitting alongside stocks and bonds. It's making taxes more, simplifying taxes, tremendous liquidity with penny wide bid ask spreads and we're bringing out that education to advisors who previously really haven't had access to these assets before. So I think continuing to invest in our digital asset space is going to be key for us.