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BlackRock CEO Sees ‘Secular Shift’ to Index ETFs


BlackRock (BLK) Chief Executive Larry Fink during the firm’s fourth-quarter earnings call this week said the company continues to be “heavily focused” on ETFs, which represent nearly a quarter of its long-term assets under management.

The BlackRock CEO sees a “secular shift to passive investing in the ETFs.”

The firm’s iShares lineup led all ETF providers in terms of 2012 inflows. In the fourth quarter, BlackRock gathered $35.7 billion of ETF flows, while the iShares business accounts for $752.7 billion, or 22% of BlackRock’s total long-term assets. [ETFs Boost BlackRock’s Quarterly Profit]

The iShares MSCI Emerging Markets (EEM) is one product that has been driving strong ETF flows recently at BlackRock. So far in 2013, investors have added $3.4 billion to the emerging markets fund, the most for any ETF.

Vanguard FTSE Emerging Markets (VWO) is dropping the MSCI index that EEM tracks. [Vanguard Emerging Market ETF Kicks Off Index Transition]

There is speculation that some institutional investors who prefer MSCI benchmarks are leaving the Vanguard ETF due to the switch to the FTSE index, Barron’s reports.

VWO, the Vanguard emerging market ETF, has a lower expense ratio than EEM. However, BlackRock did recently roll out the iShares Core MSCI Emerging Markets (IEMG), which has an expense ratio of 0.18%. Last year BlackRock introduced the iShares Core Series of ETFs targeting buy-and-hold investors. [BlackRock ‘Core’ iShares ETF Family]

“As a fiduciary we have to be relentless in terms of our expenses … to get the lowest fees possible,” Fink said during the conference call this week.

The BlackRock CEO added that index-based ETFs can coexist with the firm’s actively managed funds because clients are using them together in portfolios.

“Having beta and alpha side-by-side is a very strong position. Most people never thought they could be side-by-side. But we believe by working with our clients, we’re agnostic whether they go into beta or alpha,” Fink said.

When discussing actively managed ETFs, the BlackRock chief said he expects to see a pickup with a change of the SEC rules on derivative use. [Active ETFs May Boom After SEC Lifts Derivatives Ban]

However, he said there is a lot of “noise” about active ETFs. “We believe in them but we don’t expect them to become anything large to the extent of what core type of ETFs will produce,” Fink remarked.

Full disclosure: Tom Lydon’s clients own EEM.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.