BlackRock Plans ETF Share Classes for Mutual Funds, Mirroring Vanguard’s Strategy

BlackRock Inc., the world’s largest asset manager, has filed with the U.S. Securities and Exchange Commission (SEC) to introduce exchange-traded fund (ETF) share classes within its mutual funds, a move inspired by the tax-saving model pioneered by Vanguard Group Inc. for its investors.

This strategic shift could allow BlackRock Inc to offer a more tax-efficient structure that’s already saved Vanguard’s investors billions over the past two decades.

Vanguard held an exclusive patent on the ETF-mutual fund hybrid structure until May 2023, which enabled it to offer both ETF and traditional mutual fund share classes under the same umbrella.

With Vanguard’s patent now expired, asset managers have been eyeing this structure as a competitive edge in the evolving investment landscape. BlackRock’s proposal marks a significant step in this direction, as the $11.5 trillion giant looks to enhance flexibility for its clients by integrating ETF and mutual fund options within the same fund.

Rachel Aguirre, BlackRock’s head of U.S. iShares product, explained, “We’re focused on offering investment vehicles that align with our clients’ evolving needs. By pursuing a multi-class structure, we’re enabling our clients to choose the formats that best support their financial goals.”

BlackRock becomes latest, largest firm to seek approval for ETF share class https://t.co/BZW16OP7Mu pic.twitter.com/wD3CnO4Mhs

— Reuters (@Reuters) October 31, 2024

The SEC has no deadline to rule on such petitions, and the agency has only previously permitted Vanguard to sell both exchange-traded shares and traditional units within the same mutual fund. Vanguard’s exclusive patent for supplying both ETF and mutual fund share classes ended in May 2023, sparking interest by asset managers.

The $11.5 trillion asset management has filed for exemptive relief that would allow its active and passive funds to have a multi-class structure, making it the 33rd business to do so.

Rachel Aguirre, BlackRock’s head of US iShares product, stated that the company is providing the investment vehicles that best meet the changing demands of its clients. The multi-class structure provides clients with a new avenue for investing that best suit their specific financial goals.

Broader Industry Support for ETF Share Classes

Moreover, Cboe Global Markets hopes to force the SEC to act on the issue by requesting approval for a rule modification that would allow it to list and trade ETF share classes. Regulators must reply to such rule modification petitions within 240 days, which would be near the end of 2024.

Nasdaq and Cboe, two of the biggest stock exchanges, challenged a new SEC rule that changes the economic structure of how stocks trade https://t.co/iW32IlbCM9

— Bloomberg (@business) October 31, 2024

Dimensional Fund Advisors, one of the first funds to apply for approval to provide its existing mutual funds in an ETF format last year, said it had received letters of support from hundreds of financial advisers who handle $3 trillion in investor assets.