BlackRock is seeking regulatory clearance to create ETFs that can bet against stocks or bonds, as the $826 billion industry’s largest player seeks new products to boost revenue.
The company on Thursday applied with the SEC for the right to engage in short sales when running ETFs that track market indexes. BlackRock’s ETFs have been based on indexes that buy stocks rather than selling them short, a strategy that generates profits when the underlying asset declines in value.
BlackRock became the largest U.S. provider of ETFs through its December acquisition of BGI for $15.2 billion. Its iShares brand of ETFs oversees about $395 billion, equaling a 48% market share, said Christine Hudacko, a BlackRock spokeswoman.
According to the SEC application, BlackRock will offer ETFs based on indexes that invest in some assets, known as long positions, and sell others to create short positions. The firm may later create funds that are based on indexes that exclusively hold short positions, the filing said.
“We may offer long-short strategies in any number of ways, one being we would track an index,” Ms. Hudacko said in an interview. “We may also do it in other ways, such as more active-type strategies.”
BlackRock will initially create a 130/30 fund based on the MSCI USA Barra Earnings Yield index, according to the company’s application. This index uses mathematical models to buy companies with “positive earnings momentum” and sell short those that have negative earnings momentum, the filing said.
“In seeking to achieve its investment objective, each new fund will utilize passive indexing investment strategies,” BlackRock said in the filing. BlackRock also said the new ETFs “anticipate using securities lending to a greater extent” than existing funds to facilitate their investment strategies.
ProShare Advisors announced in July 2009 that it would open the nation’s first 130/30 ETF, based on a Credit Suisse index that uses mathematical models to forecast the best- and worst-performing stocks. The ProShares Credit Suisse 130/30 has a market capitalization of about $54 million.