BlackRock Files for First Mutual Fund Conversion

The proposed fund reorganization would close by the end of this year.

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Finance Reporter
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Reviewed by: etf.com Staff
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Edited by: Ron Day

BlackRock Inc., the largest exchange-traded fund issuer, has filed for its first mutual fund-to-ETF conversion, joining JPMorgan Chase & Co., Dimensional and other firms using the technique to boost product offerings in the faster-growing market.

New York-based BlackRock, whose iShares unit manages $2.65 trillion in 411 ETFs, filed with the Securities and Exchange Commission to convert the $700 million BlackRock International Dividend Fund into an ETF by November 18. The fund conversion will offer investors “additional trading flexibility, enhanced portfolio holdings transparency, and potential tax efficiency,” according to the filing.

ETFs have been growing at the expense of mutual funds due to their lower costs, liquidity, tax benefits and flexibility in creating products targeted to specific investing needs. At the same time, big asset managers are struggling to bring a range of mutual fund strategies into ETFs. 

Converting funds has become an increasingly popular route, as ETF issuers deal with razor-thin margins and a saturated market. About $100 billion in mutual fund assets has have been converted as ETFs since 2021, according to Bloomberg. The U.S. ETF industry has reached nearly $9 trillion in assets.

Pacific Investment Management Co also filed for its first mutual fund conversion on March 1. 

Demand from fee-based advisors and other investors was behind the decision to convert the mutual fund, BlackRock Head of Americas for Global Product Solutions Jessica Tan said in an emailed statement. 

"Fee-based advisors are increasingly using active ETFs for their efficiency and flexibility in strategies, including as building blocks in model portfolios," Tan wrote.

ETF Share Class Filings

Another route investment firms are exploring is issuing share classes of existing mutual funds—a move that would allow mutual fund investors to gain the tax benefits and efficiency of the exchange-traded fund structure while still being invested in the strategy of the given mutual fund.

Firms such as Dimensional and Morgan Stanley have filed for this unique structure that was once exclusively patented by Vanguard. If the SEC approves the rule changes, other firms will likely follow suit, unleashing what could potentially be thousands of new ETFs into the market.

Some issuers have opted to “clone” mutual fund strategies by launching an entirely new ETF that uses the same portfolio management technique with similar holdings.

Contact Lucy Brewster at [email protected].

Lucy Brewster is a finance reporter at etf.com covering asset managers, emerging technologies, and regulation. She hosts etf.com webinars and appears on Exchange Traded Fridays, etf.com’s flagship podcast. She previously was a finance fellow at Fortune Magazine where she covered markets, investment strategy, and venture capital. She has also been a freelancer writer at the publication Mergers & Acquisitions and a research fellow at the Historic Hudson Valley. 

She graduated from Vassar College in 2022 with a degree in History and was an editor of The Miscellany News, the college's award winning student run newspaper. 

Lucy lives in Brooklyn, NY, and in her free time she loves to run and find new recipes to cook.