Actively managed ETFs pulled in approximately 40% of the industry flows through the first four months of 2025. These ETFs tap into professional expertise, which has been helpful in the volatile market environment. The latest model allocation changes made by BlackRock’s team will help more ETF-minded advisors have greater access to active strategies.
The BlackRock Target Allocation team runs models that support approximately $160 billion. Changes are made a few times a year with the last one in late February. A number of ETFs are typically bought or sold to support the models’ objectives and respond to the market environment. The changes made in late May led to the skyrocketing of assets for two actively managed equity ETFs.
Why Active ETFs Make Sense for Models
“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”, explained Michael Gates in a note obtained by TMX VettaFi. Gates is the lead portfolio manager for BlackRock’s Target Allocation ETF model portfolio suite.
“These management teams have deep expertise in markets or investment styles that we cannot access via index ETFs. Faster moving insights and dynamic risk adjustments are bundled within the active strategy – improving the agility and preserving the tax efficiency of our portfolios.”
BlackRock has initiated and then boosted allocations to iShares actively managed ETFs in the past couple of years. The now $17 billion iShares U.S. Equity Rotation ETF (DYNF ), the $9 billion iShares Flexible Income Active ETF (BINC ), and the $1.8 billion iShares High Yield Muni Active ETF (HIMU ) are a few examples.
A Newly Popular Diversified Thematic ETF
The iShares U.S. Thematic Rotation Active ETF (THRO ) is one of the the most recent active ETFs to cross $1 billion. VettaFi wrote early March 2025 how THRO was recently a $15 million ETF despite launching in 2021. Following the latest BlackRock model rebalance, assets climbed to $3.9 billion on May 24 from approximately $650 million in mid-May. This was when THRO was first added to the BlackRock models.
THRO 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. Some traditional mega-cap growth stocks like Apple and Microsoft were among THRO’s recent top-10 holdings. However, they were joined by Boston Scientific, Checkpoint Software Technologies, and TJX.
We believe THRO is being used as a higher conviction large-cap allocation in the models. THRO owns approximately 220 positions, less than half an index-based large-cap alternative.
A More Targeted Thematic Approach
The iShares AI Innovation and Tech Active ETF (BAI ) is the other newly popular active equity ETF now found in BlackRock models. BAI managed $145 million in assets as of May 20, but following the model addition, assets reached $1.3 billion on May 24.
Gates added “Tech remains one of our highest conviction and longest running portfolio overweights, and within tech AI is the highest conviction driver. Exposure to the AI theme itself will likely reward investors in our view, we believe bottom-up, fundamental active management by technology specialists that can invest across the AI stack may offer an even more effective expression of this view.”
BAI’s largest positions included NVIDIA (9% of assets), Broadcom (8%), Meta Platforms (7%), Microsoft (7%), and Snowflake (4%). We view BAI as a more targeted thematic approach than the iShares U.S. Technology ETF (IYW ) that we believe was being used in the BlackRock models. BAI has one-third the number of positions as IYW. However, we note that end clients’ exposure to Microsoft and NVIDIA was reduced. These stocks were a combined 30% of assets for IYW.
BlackRock also made changes to the ETF models to reduce the underweight to Chinese equities and trim the weighting toward gold.
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