It seems these days that much of the exchange-traded fund industry is laser-focused on providing the best artificially intelligent investment products. But investment managers are still out there who are content to stick to their knitting. That knitting, of course, is using old-fashioned human eyeballs that are connected to human brains that tap into that person's and their group's collective experience to select securities. One of those issuers that has managed to perform well doing this is BlackRock (BLK) .
Better known for its iShares ETF brand, the company itself also offers funds under its own mark. Let's see what the product development group at Blackrock has been up to lately.
Two New Funds: BLCV and BINC
BlackRock launch in late May the BlackRock Large Cap Value ETF (BLCV) and the BlackRock Flexible Income ETF (BINC) . BLCV sports a 55 basis point (bps) expense ratio so $1,000 invested over a year would see $5.50 go to paying fees. BINC has a 40 bps expense ratio up until June 30, 2025, when the 10 bps fee waiver expires and expenses revert to the original 50 bps.
Both funds are actively managed but do not utilize any of the active, non-transparent mechanisms I've discussed in other articles so portfolio manager decisions are trackable.
As mentioned, BLCV is actively managed but is benchmarked to the Russell 1000 Value Index. What this means is not only fund performance compared to this index, but the index also defines the security universe from which managers are making portfolio holding selections. Also included in this pool are American Depository Receipts (ADRs) which are shares that trade in the U.S. but are linked back to foreign listed equities. The prospectus doesn't really get into the security selection process but simply states the fund "invests primarily in securities (the firm) believes are undervalued" and goes on to point to Price to Earnings (P/E) ratios and higher than average Dividend payments as metrics of "particular emphasis." Seasoned ETF investors have gotten used to issuers going to great lengths to educate potential shareholders about a fund's strategy and process, but as we see more actively managed ETFs come to market, the old "trust us, we're experts" type language will become more commonplace. BLCV literature puts the number of fund holdings between 50 and 60 and sets an expected fund beta to the market of 1.0 which means investors should expect fund returns to be no more or less volatile than benchmark returns. Essentially, an old-school basic Large Cap Value product.
BINC is benchmarked to the Bloomberg U.S. Universal Index. The index lives up to its name as the methodology describes it as "the union of" the U.S. aggregate index, U.S. corporate high yield index, the investment grade 144A index, the euro-dollar index, the U.S. emerging markets index (dollar denominated emerging market debt), and the non-employee retirement income security act of 1974-eligible portion of the collateralized mortgage backed securities index.
Basic qualifications include a maturity of at least one year, and various issue size limitations depending on the security type. Both senior and subordinated bonds are eligible but convertible bonds and other bonds with equity conversions features like preferred shares, and warrants as well as municipal bond securities, inflation-linked securities, private placements, and U.S. Treasury's Separate Trading of Registered Interest and Principal of Securities are excluded. The current fund profile states 382 holdings with a weighted average coupon of 4.79%, weighted average maturity of 6.23 years, and an effective duration of 3.07 years which falls in the stated target one to five year range. The Option Adjusted Spread of the fund is 245 bps (2.45%) meaning that this portfolio is yielding 2.45% above what a portfolio of treasuries with a similar duration would produce. Holdings include the various asset types listed above as well as other iShares ETFs. Additionally, per the prospectus fund managers are able to utilize various derivative types (futures, options, options on futures, swaps, etc.) to either enhance or hedge portfolio positions.
Wrap It Up
As I've written before, BlackRock generally stays in its lane of providing broad market exposure and it continues to do so with these two new funds. BINC is appealing for its broad scope and the duration positioning given where we are in this rate cycle. It could be that in a year or so longer duration bonds might be the place to be as rates start to come down but for now, this makes sense.
