The proliferation of exchange traded funds in the financial marketplace has led to a plethora of new offerings from a number of major money managers and financial conglomerates. The largest of these is Blackrock Capital Management, which now offers a comprehensive line of ETFs that covers most asset categories and subcategories. Their family of ETFs trades under the brand name iShares, which can be viewed at http://us.ishares.com.
History of Blackrock Capital ETFs
The first ETF appeared in 1993 when Standard & Poor's introduced the SPDR (S&P American Depository Receipt), which invested in the 500 companies that comprised the S&P 500 Index. Morgan Stanley began offering its own line of ETFs soon afterward, known as the WEBS (World Equity Benchmark Series), which were actual mutual funds managed by Barclay's Global Investors (as opposed to the SPDR, which was a Unit Investment Trust (UIT)).
In late 1999, there were only about 30 or so ETFs available on the market, but Barclays then released over 40 new ETFs along with an aggressive marketing and educational program for new investors. In 2009, Blackrock Capital (NYSE:BLK) stole a bid to buy out Barclays Global Investors out from under a private equity firm and landed the company for over $13 billion. Blackrock Capital has since marketed its ETFs under the brand name iShares and now offers over 200 ETFs to investors worldwide. Blackrock Capital is now the world's largest manager of money with over $3.5 trillion in assets under management.
What Are Blackrock Capital ETFs?
The current family of ETFs offered by Blackrock Capital includes over 440 iShares funds, 275 of which are available domestically. They comprise nearly half of the entire ETF market. iShares funds cover several sectors of the economy and several asset classes that encompass all levels and types of risk and reward, including equity income, fixed income, growth, international, gold and emerging and frontier markets.
Their funds are extremely tax efficient; less than 2% of them posted capital gains distributions in 2012, and over 230 of their funds have never paid a capital gain distribution. iShares are very transparent instruments; they post the list of securities held in each of their funds every day so that investors know exactly what they are holding at all times. Blackrock's ETFs are also very cost efficient; their average expense ratio is less than 1%. They offer at least one fund that tracks virtually every single major financial index in existence, including the ones provided by:
- Barclay's Capital
- Cohen and Steers
- Dow Jones
- FTSE & Xinhua
- JP Morgan
- Standard & Poor's
Core Funds and Model Portfolios
iShares offers 10 "core" funds that encompass the majority of the major sectors of both the domestic and international markets and provide broad diversification across these sectors. They include small-, mid- and large-cap stocks, short- and long-term bonds and the emerging markets. These funds are collectively designed to act as the main "engine" in an investor's portfolio and offer a stable base upon which to construct more specialized portfolios. They also offer model portfolios that are professionally managed and can be custom-tailored for clients by their advisors to achieve a variety of investment objectives with minimal risk and volatility.
Who Should Invest in Them
Blackrock ETFs can be used by virtually any type of investor. They have funds that will match virtually any investment objective or tolerance for risk, and many institutions use their products as well as individuals. Their funds can provide large-, mid- and small-cap growth and value, interest and dividend income, tax savings, sector and international exposure as well as specialized subsectors of the markets. Their conservative funds may provide an attractive alternative for CD holders, and investors who hold losing positions may want to consider exchanging their current holdings for an iShares ETF that invests in similar companies, or may even hold that particular stock or bond in the fund.
Advantages and Disadvantages
The major advantages of Blackrock ETFs have already been listed: liquidity, transparency, diversification, a wide variety with professional selection and management at a very low cost to the investor. And because most of Blackrock's ETFs are constructed to track an index, they are immune to certain factors that can affect many actively managed funds, such as style drift.
Perhaps the biggest drawback that may come with owning these funds is the temptation that some may have to overtrade them, since they can all be purchased and sold during intraday trading in the same manner as other individual securities. Their simplicity and versatility has also made them popular instruments for advisors, particularly those who offer fee-based asset management. Blackrock can also boast to having the funds with the longest track record in the industry, with the first forerunner of its offerings appearing in 1971.
Partnership with Fidelity
On March 13, 2013, Blackrock announced a new mega-partnership with investing flagship Fidelity Investments that will allow the mutual fund giant to market Blackrock's iShares to their base of 10 million customers with no commission. This more than doubles the number of iShares funds that Fidelity previously offered to investors and incorporates all 10 of the iShares Core ETFs. Fidelity now offers a total of 65 of iShares' most popular offerings and has scored against Charles Schwab, one of its key competitors that just created a new ETF trading program called OneSource, which boasts 105 ETFs that its customers can trade without paying commissions. But this partnership could also ultimately signify a major movement in the ETF arena into active management, such as with Fidelity funds.
The Bottom Line
Blackrock Capital will continue to improve and expand its impressive line of ETFs in order to better meet the needs of investors in an ever-changing marketplace. Its line of offerings can provide liquidity, diversity and transparency for both sophisticated and novice buyers with a minimum of tax liability and management expenses even as it begins to explore active fund management. For more information on these funds, visit their website or consult your financial advisor.