BlackRock Takes Aim at Money Market ETFs

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BlackRock Inc. is launching two money market ETFs, tapping into the $6.6 trillion industry that has swelled amid high-interest rates, though the timing may prove challenging as the Federal Reserve begins to ease policy.

The world’s largest asset manager is seeking approval for the iShares Government Money Market ETF and iShares Prime Money Market ETF, according to regulatory filings with the Securities and Exchange Commission.

The proposed ETF would offer investors the ability to trade throughout the day, unlike traditional money market funds. However, they won’t maintain the stable $1 net asset value that conventional money market funds provide.

Money Market Timing Challenges

The launch timing could prove crucial for the fund’s success, according to Aniket Ullal, head of ETF research at CFRA. He notes that two years ago would have been ideal for such products, when rising rates were driving investors towards money market funds.

However, Ullal suggests there still might be opportunity in the current environment. With yields still around 4%, investors may look to these funds to lock in returns before rates fall further.

Despite expectations of rate cuts, money market funds haven’t seen significant outflows. “We’ve seen some net additions to money market funds, so it’s possible that these funds may not be too late,” Ullal said.

BlackRock’s established presence could help drive adoption of these new products, according to Ullal.

“Blackrock entering the space is a different ballgame, because they have a much better recognized brand and distribution muscle,” he added.

The government money market ETF will invest at least 99.5% of its assets in instruments including cash, U.S. Treasury bills, and repurchase agreements, while the prime fund will invest in a broad range of short-term commercial, bank, and government instruments.

Research from Managing Partners Group shows that 96% of institutional investors and wealth managers are looking to fixed income for stability, diversification, and income in portfolios.

Over half of the investors surveyed predict that between $2 trillion and $2.5 trillion will leave U.S. money markets and return to the bond market in the coming years.

If approved, BlackRock’s funds would be just the second and third money market ETFs to launch, following the Texas Capital Government Money Market ETF (MMKT), which was the first ETF to follow traditional money market fund rules when it debuted in September.