BlackRock's DYNF ETF Hits $7.7B, Shifts Active Strategy Focus

Key Takeaway

• BlackRock's U.S. Equity Factor Rotation ETF (DYNF) assets surged to $7.7 billion after inclusion in its model portfolio, highlighting active ETFs' growing appeal.
• Active management's rise in ETFs is evident as DYNF outperforms, with a focus on quality, size, and momentum factors.
• Despite higher fees at 0.30% and past volatility, DYNF's success underscores the strategic shift towards active investment strategies within model portfolios.

BlackRock's Strategic Move

In a significant shift within the investment landscape, BlackRock's U.S. Equity Factor Rotation ETF (DYNF) experienced a dramatic surge in growth following its inclusion in BlackRock's target allocation model portfolio in mid-March. This move transformed DYNF from a relatively modest fund with less than $1 billion in assets to a powerhouse with nearly $7.7 billion in assets under management (AUM), as reported by FactSet. This growth not only underscores the increasing influence of model portfolios but also highlights the burgeoning interest in active ETFs within the financial sector.

Michael Gates, lead portfolio manager for BlackRock’s Target Allocation ETF model portfolio suite, emphasized the strategic advantage of incorporating active ETFs, stating, "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." This approach has yielded positive outcomes for investors, with DYNF posting a 1.6% increase since March 15, outperforming comparable BlackRock index funds.

The Appeal of Active Management

Active management, particularly in the realm of ETFs, has seen a notable rise, with the share of U.S. ETFs that are active more than quadrupling since 2019 to nearly 10%, according to Morningstar. This growth is mirrored in the model portfolio space, which has seen its assets increase significantly. Elisabeth Kasner, director of exchange-traded fund research and analytics at FactSet, pointed out the complexities this growth introduces, necessitating greater due diligence from investors and advisors alike.

DYNF's strategy focuses on identifying companies that excel in historical investing factors such as quality, size, and momentum, adjusting its exposure based on anticipated market drivers. This has led to a diverse portfolio that includes major tech and financial companies, demonstrating the fund's dynamic approach to asset allocation.

Navigating Costs and Risks

Despite the allure of active management, it's accompanied by higher fees and potential volatility. DYNF carries an expense ratio of 0.30%, compared to the 0.03% for more passive counterparts like IVV and ITOT. Additionally, the fund's performance has seen fluctuations, underperforming in previous years before its recent success. This highlights the inherent risks and costs associated with active strategies, as well as the limitations of model portfolios that may prioritize in-house funds over potentially superior options.

Street Views

• Michael Gates, BlackRock (Bullish on DYNF):

  "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."

• Elisabeth Kasner, FactSet (Neutral on model portfolios and active ETFs):

  "More due diligence is required from the end user, whether that’s the financial advisor or the investor himself or herself to really figure out why the models are put together the way that they are."