The BlackRock Target Allocation team further embraced active ETFs at the end of February. The team runs model portfolios for advisors worth we believe approximately $150 billion. A number of ETFs are typically bought or sold to support the models’ objectives and respond to the market environment. However, this time there were three notable additions: the iShares Bitcoin Trust ETF (IBIT ), the iShares U.S. Thematic Rotation Active ETF (THRO), and the iShares High Yield Muni Active ETF (HIMU).
BlackRock Further Embraces Active ETFs
“The inclusion of active ETFs in our toolkit provides our models access to both single security selection expertise and exposure to parts of the market that are not available through existing vehicles,” explained Michael Gates, lead portfolio manager for BlackRock’s Target Allocation ETF model portfolio suite. Our analysis shows potential increased alpha from diversification and security selection, and a potential for stronger risk adjusted return.”
In 2024, BlackRock added the iShares Flexible Income Active ETF (BINC ) and the iShares Dynamic Equity Factor Rotation ETF (DYNF ) to its models. Following the initial positions and the subsequent increases, the asset bases of BINC and DYNF soared. We think the same will occur for two of the three new additions.
The Role of Bitcoin in Broader Portfolios
IBIT is a $48 billion ETF despite less than 14 months of history. Advisor and investor demand for bitcoin exposure has been robust since IBIT launched. The price of bitcoin rose sharply in 2024 and in January, but declined in February. Thus far in 2025, bitcoin was down for the year.
BlackRock believes bitcoin has long-term investment merit and can potentially provide unique and additive sources of diversification to portfolios. Gates expects the “store of value” narrative will continue to resonate with more investors in the current environment, both retail and institutional. The attraction of adding a liquid, diversifying return stream to portfolios aside from traditional stocks and bonds will provide a strong portfolio case to multi-asset investors and other innovative portfolio builders, according to BlackRock.
IBIT has quickly become one of the larger and more liquid ETFs in the industry. We believe many advisors and their clients who leverage the BlackRock models and have an alternatives allocation and a higher risk budget will be pleased that they have exposure to bitcoin. However, we don’t think many other investors will notice a shift in IBIT’s assets base. In contrast, active equity ETF THRO and active bond ETF HIMU were recently much smaller ETFs.
BlackRock Added Lesser-Known ETFs Too
Gates noted that accessing alpha-seeking strategies through an active ETF provides the potential for more dynamic alpha seeking while retaining the tax efficiency, liquidity, and transparency benefits of the ETF wrapper. These management teams have deep expertise in markets or investment styles that BlackRock cannot access via index ETFs.
THRO was recently a $15 million ETF despite launching in 2021. The active equity ETF is run by BlackRock’s systematic equity team using a data-driven approach to identify, evaluate, and rotate among market themes. The data is based on earnings calls, broker research, large language model workflows, and more to build a portfolio. While some traditional mega-cap growth stocks like Apple and Nvidia were among the recent top-10 holdings., they were joined by Boston Scientific and Costco Wholesale.
Based on the expected allocation, we think THRO’s asset base could quickly approach $700 million. That would catapult THRO into one of the larger actively managed equity ETFs.
A Former Bond Mutual Fund Garners ETF Interest
Meanwhile, municipal bond ETF HIMU is different. While the ETF has a short history as an ETF, it has nearly two decades of a relevant performance record. HIMU converted into an ETF, from a mutual fund, in early February. The ETF recently had $1.6 billion in assets. However, the base could soon be $2 billion based on the model addition.
Index-based high yield municipal bond ETFs tend to primarily invest in bonds rated investment grade or speculative grade by major rating agencies. HIMU does not, and recently had 63% of assets in nonrated bonds. Much of the remainder was in securities rated BBB or BB. HIMU had a tax-equivalent yield of 7.7%. The ETF was added into the tax-sensitive models BlackRock runs.
We believe existing model allocation to the iShares S&P 100 ETF (OEF ) and the iShares MSCI Quality Factor ETF (QUAL ) were also boosted in late February, as increasing U.S. stock exposure was a priority. IBIT will likely be the most noticeable addition to BlackRock’s model portfolios. But we think it worth understanding what else has been added. We believe many people will see the soaring asset bases of HIMU and THRO and wonder if the funds are right for them.
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