BlackRock is integrating hedge fund strategies into its exchange-traded fund (ETF) offerings, emphasizing the potential for diversification during periods of market instability. Jeffrey Rosenberg, a senior portfolio manager on BlackRock’s systematic fixed income team, is spearheading the company’s liquid alternative ETFs, which utilize a long-short strategy. He highlighted a significant shift in the relationship between stocks and bonds, noting that the traditional expectation of bonds rising as stocks fall has recently been challenged. This was evident during the volatility observed in March, influenced by geopolitical risks, and throughout 2022.
Rosenberg explained that the post-COVID environment has unsettled the foundational principle of the classic 60-40 investment portfolio, where investors allocate 60% to stocks and 40% to bonds. He noted a growing client demand for liquid alternatives, driven by the need to diversify existing portfolios. “Investors are looking for ways to enhance their diversifiers,” he stated, pointing out that BlackRock is applying strategies typically associated with hedge funds, including market neutral and long-short investing.
Among BlackRock’s liquid alternative ETFs are the iShares Systematic Alternatives Active ETF (IALT) and the iShares Managed Futures Active ETF (ISMF), both of which have reported commendable gains so far this year. Rosenberg indicated that these liquid alternatives offer opportunities for returns outside of typical market trends, which is particularly vital given the increasing dominance of large-cap tech stocks in equity markets. He emphasized that liquid alternatives can help investors navigate the loss of diversification that current market conditions present.
According to Todd Rosenbluth from VettaFi, while liquid alternative ETFs remain a developing sector, there is a growing interest among advisors for products that respond differently to market shifts.
Why this story matters
- It reflects evolving investment strategies amid changing market dynamics.
Key takeaway
- Liquid alternatives provide potential diversification benefits that traditional portfolios may lack.
Opposing viewpoint
- Some analysts caution that liquid alternatives are still a nascent category compared to traditional investments.
