Blackrock Just Converted Its First Mutual Fund to an ETF. Here’s Why.

BlackRock has made history by converting a mutual fund into an exchange-traded fund (ETF), underscoring the growing popularity of actively managed ETFs among investors. This landmark move transformed the BlackRock International Dividend Fund into the BlackRock International Dividend Active ETF (ticker: BIDD). The ETF, now listed in the U.S., aims to invest in high-quality, dividend-paying stocks across both developed and emerging markets globally.

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Rachel Aguirre, BlackRock’s head of U.S. iShares product, called the conversion “a significant milestone” for the firm. In a recent interview, she noted that BlackRock plans to convert more mutual funds into active ETFs where it aligns with the strategy and benefits existing shareholders. According to Aguirre, investor preference is increasingly shifting toward ETFs because they offer advantages like tax efficiency, lower costs, daily transparency, and the ability to trade intraday on exchanges.

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Conversions from mutual funds to ETFs have gained traction over the past few years. Asset management firms have also been introducing ETFs with strategies closely resembling their mutual fund counterparts to meet growing demand. In the last year, BlackRock launched several such ETFs, including the iShares Total Return Active ETF, iShares Large Cap Growth Active ETF, iShares High Yield Active ETF, and iShares Technology Opportunities Active ETF. These actively managed funds mirror strategies employed in the firm’s mutual funds.

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The BlackRock International Dividend Active ETF, created through this conversion, had approximately $765 million in assets under management as of November 14, according to the company. The ETF carries a net expense ratio of 0.61%, which presents cost savings for most of the fund’s existing shareholders. Before the conversion, fees for the mutual fund ranged from 0.61% to 1.65%, depending on the share class.

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Managed by BlackRock’s global equity team co-head Olivia Treharne and portfolio manager Molly Greenen, the new ETF aims to outperform its benchmark, the MSCI ACWI ex US Index. Treharne and Greenen are focusing on leveraging the fund’s active management to deliver superior results compared to its benchmark.

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Aguirre expressed optimism about the future of actively managed ETFs, stating, “We expect that the active ETF industry is going to continue to grow.” BlackRock currently manages $33 billion across more than 40 active ETFs in the U.S., a figure the firm expects to expand as demand accelerates.

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The broader market for active ETFs has seen significant momentum. According to Morningstar, 34 mutual funds were converted to ETFs in 2023, compared to 20 in 2022. By November 14, 2024, that number had surged to 49. However, Bryan Armour, Morningstar’s director of passive strategies research, noted that this year’s higher figure includes 32 conversions from Stone Ridge funds with various target dates, which skews the overall tally. Armour emphasized the rapid adoption of active ETFs, saying, “There’s been significant growth in the active ETF market. We’re seeing much broader adoption there.”

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Notable mutual fund-to-ETF conversions this year include the Essential 40 Stock ETF, First Trust WCM Developing World Equity ETF, and First Trust WCM International Equity ETF, which transitioned in October. Additionally, the PIMCO Mortgage-Backed Securities Active ETF completed its conversion in September.

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The trend reflects a larger shift in investor preferences toward ETFs over mutual funds. With their transparency, cost-effectiveness, and flexibility, ETFs have become the preferred choice for many market participants. BlackRock’s move to convert its mutual fund to an active ETF represents a strategic effort to align with this evolution in investor demand while offering cost savings and enhanced accessibility to its clients.

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As the ETF market continues to evolve, BlackRock’s milestone conversion signals a broader industry shift that could reshape how asset managers design and distribute their investment products.

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