BlackRock Seeks Permission to Launch ETFs from Mutual Funds Amid Rising Investor Demand

BlackRock Inc., the world’s largest issuer of exchange-traded funds (ETFs), has filed with the Securities and Exchange Commission (SEC) to convert some of its mutual funds into ETFs, a strategy previously exclusive to Vanguard Group Inc. In an October 30 filing, BlackRock requested approval to offer funds that can issue both ETF and mutual fund shares, a structural change that could significantly expand the company’s ETF offerings as investor interest in the asset class continues to surge.

While the SEC has not commented on individual filings, industry observers anticipate that, if granted, BlackRock’s approval could accelerate a trend that has already seen other major financial institutions like Fidelity, Morgan Stanley, and Dimensional request similar permissions since Vanguard’s exclusivity on the conversion process ended in May 2023. Vanguard’s exemption, which lasted from 2000 until last year, generated an estimated $100 billion in gains for its shareholders. The “multi-class” approach allows mutual fund investors to transition to ETF structures, potentially benefiting from lower fees, greater tax efficiency, and the flexibility of real-time trading.

Currently, BlackRock manages $11.5 trillion in assets, with its iShares ETFs representing $3.04 trillion across 438 products. By gaining the right to issue ETFs from its 584 mutual funds, BlackRock could expand its ETF offerings substantially, adding competitive weight against Vanguard, which holds $2.64 trillion in assets across 86 ETFs. “The multi-class structure opens an important new avenue of choice for clients to invest in the manner that helps them achieve their distinct financial goals,” said Rachel Aguirre, BlackRock’s head of U.S. iShares Product, in an emailed statement.

ETF Popularity Grows as Mutual Funds Decline

The mutual fund-to-ETF conversion trend reflects broader shifts in investor preferences. As ETFs continue to grow in popularity due to their liquidity, tax advantages, and lower cost structures, mutual funds have seen a significant outflow of capital. In recent years, trillions of dollars have left mutual funds, while the total assets under management in ETFs have surged to around $10 trillion.

In its filing, BlackRock cited feedback from financial professionals and clients who noted a “greater interest in ETFs,” spurred in part by the rise of ETF model portfolios, which offer a diversified, flexible investment structure suitable for both individual and institutional investors.

Beyond Traditional Assets: Leveraging Digital Assets for Broader Investment

BlackRock’s filing comes at a time when financial institutions are expanding their investment strategies to include digital assets. Increasingly, asset managers are using blockchain-enabled digital assets as tools to invest in growth companies across industries beyond tech, such as energy, healthcare, and even consumer goods. The flexibility and liquidity of digital assets allow these institutions to gain exposure to high-potential sectors without the constraints of traditional equity markets, signaling a shift in how investment portfolios are constructed.

As the ETF landscape continues to evolve with regulatory changes, demand for digital and blockchain-based assets is also redefining how institutional investors approach growth opportunities. Should BlackRock secure SEC approval, it would mark another significant step in the growing trend of financial institutions adapting to a new era of investment preferences, driven by the flexibility, accessibility, and innovation that ETFs and digital assets offer.

David Thompson
Financial Desk