BlackRock, the global investment management giant, has announced the successful conversion of the BlackRock International Dividend Fund into an active ETF, unveiling the BlackRock International Dividend ETF (NYSE: BIDD). This landmark move represents BlackRock’s inaugural foray into converting an active mutual fund into an active ETF, underscoring the increasing demand among U.S. investors for the flexibility, liquidity, and tax advantages offered by ETFs.

This development also marks BlackRock’s first U.S.-listed active ETF designed to provide investors with exposure to dividend-paying companies across both international developed and emerging markets.

The Growing Demand for International Equities

With the U.S. stock market dominated by mega-cap companies, many investors are now exploring opportunities in international equities, particularly those with strong dividend payouts. International dividend-paying equities not only provide an attractive source of income but also offer potential diversification benefits, especially during periods of U.S. market saturation or volatility.

“Investors are seeking alternatives to enhance portfolio resilience and returns, and international equities have become an increasingly viable option,” said Olivia Treharne, Portfolio Manager & Co-Head of BlackRock’s Global Equity Team.

The BlackRock International Dividend ETF invests at least 80% of its assets in high-quality dividend-paying companies, leveraging BlackRock’s extensive expertise in global equity strategies.

Proven Expertise from an All-Female Portfolio Management Team

The ETF is managed by an all-female portfolio management team led by Olivia Treharne and Molly Greenen, who have a proven track record of delivering consistent outperformance. Their high-conviction international equity strategy has positioned BlackRock as a leader in the space, making this conversion a significant step in broadening access to these strategies.

By converting a successful mutual fund into an ETF, BlackRock ensures continuity in its investment approach while offering investors the added benefits of ETFs, such as greater transparency, intraday trading, and potential tax efficiency.

Key Features of the BlackRock International Dividend ETF (BIDD)

• Ticker: NYSE: BIDD
• Underlying Index: MSCI ACWI ex US Index
• Expense Ratio: 0.61%
• Objective: To deliver strong returns by investing in high-quality dividend-paying international companies.

Rachel Aguirre, Head of U.S. iShares Product at BlackRock, highlighted the significance of this milestone:
“Our product development strategy is rooted in client needs. The conversion of our first mutual fund to an active ETF reflects the growing preference for the ETF structure among fee-based advisors and individual investors.”

Why Convert Mutual Funds to ETFs?

The trend of converting mutual funds into ETFs is gaining momentum across the asset management industry. This shift is driven by several factors, including:

1. Investor Preferences: ETFs offer lower fees, greater transparency, and tax efficiency compared to traditional mutual funds.
2. Market Trends: As more investors gravitate toward passive and active ETFs, asset managers are adapting to meet demand.
3. Regulatory Changes: Updated regulations have streamlined the process for mutual fund-to-ETF conversions, making them more appealing for fund managers.

BlackRock’s move aligns with industry trends, as investors increasingly seek diversified, cost-effective solutions for international exposure.

A Broader Vision for Active ETFs

BlackRock’s active ETF platform is already a formidable player, managing over $33 billion in assets across more than 40 active ETFs in the U.S. The introduction of BIDD adds to its portfolio of innovative solutions aimed at empowering investors with diversified tools for growth.

The global ETF market continues to grow exponentially, with assets expected to exceed $15 trillion by 2025. Active ETFs, in particular, are projected to play a pivotal role in this growth, as they combine the benefits of active management with the structural advantages of ETFs.

Advantages of the ETF Wrapper

The ETF structure has gained widespread popularity due to its numerous advantages:

• Liquidity: ETFs can be traded throughout the day on exchanges, unlike mutual funds, which are traded at the end of the trading day.
• Tax Efficiency: ETFs typically have lower capital gains distributions compared to mutual funds, reducing the tax burden on investors.
• Transparency: ETFs disclose their holdings daily, offering investors greater visibility into their investments.

Challenges and Risks

While the benefits of investing in international dividend-paying equities are significant, they are not without risks. Factors such as currency fluctuations, political instability, and economic uncertainty can impact the performance of international markets. Moreover, emerging markets carry additional risks, including lower liquidity and less stringent regulatory frameworks.

Investors must also consider the potential volatility associated with sector-specific or region-specific investments. Diversification remains crucial to mitigating these risks.

BlackRock’s Commitment to Innovation

BlackRock has consistently demonstrated its ability to adapt to evolving market dynamics. The launch of BIDD is part of its broader strategy to provide investors with cutting-edge solutions that combine robust performance with ease of access.

The firm’s commitment to innovation is evident in its extensive ETF lineup, which includes solutions for equities, fixed income, commodities, and multi-asset strategies. With over two decades of experience and $4.2 trillion in ETF assets under management as of September 2024, BlackRock remains a global leader in the ETF space.

The Road Ahead for BIDD and Active ETFs

The introduction of the BlackRock International Dividend ETF is likely to set a precedent for future mutual fund-to-ETF conversions within the industry. As investors increasingly prioritize cost efficiency and flexibility, the demand for active ETFs is expected to rise.

BlackRock’s ability to leverage its expertise in global equity markets, coupled with its focus on innovation, positions it well to capitalize on this trend. The success of BIDD could pave the way for similar products, further solidifying BlackRock’s leadership in the active ETF market.

Conclusion

The launch of the BlackRock International Dividend ETF marks a transformative moment for BlackRock and the broader investment industry. By combining the strengths of active management with the benefits of the ETF structure, BIDD offers a compelling solution for investors seeking exposure to high-quality international dividend-paying equities.

As BlackRock continues to innovate and expand its product offerings, it reaffirms its commitment to helping investors navigate the complexities of global markets and achieve their financial goals.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

20th November, 2024