BlackRock rips page from hedge fund playbook, applies it to ETFs

BlackRock is revolutionizing the exchange-traded fund (ETF) industry by incorporating hedge fund strategies into their offerings. Jeffrey Rosenberg, a senior portfolio manager at the firm, is leading the charge in the development of liquid alternatives ETFs. These innovative ETFs utilize a long-short strategy within an ETF wrapper, providing investors with valuable diversification opportunities in today’s volatile market.

Rosenberg highlights the recent breakdown in the traditional relationship between stocks and bonds, emphasizing the need for alternative investment strategies. He notes that the 60-40 portfolio model, where bonds act as a diversifier to stocks, has been challenged in the current market environment. This has led to a surge in demand for liquid alts ETFs as investors seek to diversify their portfolios further.

By leveraging techniques from BlackRock’s hedge fund business, which focus on market-neutral, long-short investing, Rosenberg aims to offer investors exposure to non-beta sources of return. This approach differs from traditional ETFs, which primarily provide beta exposure to market movements. Rosenberg manages two BlackRock liquid alts ETFs – the iShares Systematic Alternatives Active ETF (IALT) and the iShares Managed Futures Active ETF (ISMF) – both of which have shown positive performance year to date.

Liquid alternatives ETFs offer investors the opportunity to explore different sources of return beyond market directionality. This is particularly valuable in a market environment dominated by large-cap tech stocks, where diversification can be challenging. By incorporating liquid alternatives into their portfolios, investors can mitigate concentration risk and enhance overall diversification.

Todd Rosenbluth, head of research at VettaFi, views liquid alts ETFs as an emerging category that is gaining traction among advisors. He emphasizes the appeal of these ETFs as a counterbalance to traditional asset classes, providing investors with a hedge against market volatility.

In conclusion, BlackRock’s foray into liquid alternatives ETFs represents a significant shift in the industry towards innovative investment strategies. By offering investors access to non-traditional sources of return and enhanced diversification, these ETFs are poised to play a key role in shaping the future of investment management.