Meet BlackRock's Latest Pair of $1B Active ETFs

BlackRock's recent model portfolio rebalancing in late May, impacting approximately $160 billion in assets, has significantly boosted the assets of two actively managed iShares ETFs: the iShares U.S. Thematic Rotation Active ETF (THRO) and the iShares AI Innovation and Tech Active ETF (BAI). THRO's assets surged from $650 million to $3.9 billion, while BAI's climbed from $145 million to $1.3 billion, driven by BlackRock's increased allocation to these ETFs to access dynamic alpha-seeking strategies and thematic exposures like AI, reflecting a shift towards more targeted thematic investments within their models.

Analysis

BlackRock's recent model rebalancing in late May, impacting approximately $160 billion in assets managed by its Target Allocation team, underscores a significant strategic shift towards actively managed ETFs, which captured around 40% of industry flows in the first four months of 2025. This rebalance led to a dramatic increase in assets for two specific iShares active ETFs: the iShares U.S. Thematic Rotation Active ETF (THRO) saw its assets surge from approximately $650 million to $3.9 billion, while the iShares AI Innovation and Tech Active ETF (BAI) grew from $145 million to $1.3 billion. Michael Gates, lead portfolio manager for BlackRock’s Target Allocation ETF model portfolio suite, highlighted that active ETFs offer dynamic alpha-seeking potential, tax efficiency, liquidity, and transparency, alongside access to specialized market expertise and faster risk adjustments not available via index ETFs. THRO, which employs a data-driven approach to rotate among market themes and holds around 220 positions, is being utilized as a higher conviction large-cap allocation. BAI offers a more targeted exposure to the AI theme, which BlackRock views as a high-conviction overweight; BAI holds significantly fewer positions than broader tech ETFs like the iShares U.S. Technology ETF (IYW), which was previously used, resulting in reduced client exposure to mega-caps like Microsoft and NVIDIA that were a combined 30% of IYW. The rebalance also involved reducing the underweight to Chinese equities and trimming gold allocations, signaling broader tactical adjustments.

Key Decisions for Investors

• Investors should consider the growing institutional adoption of actively managed ETFs, such as THRO and BAI, as a potential avenue for accessing alpha-seeking strategies and specialized thematic exposures, particularly in dynamic market environments.
• Evaluate the strategic shift towards more concentrated, actively managed thematic funds like BAI as a replacement for broader index-based ETFs like IYW, considering the implications for specific stock concentrations, such as the reduced weighting in Microsoft and NVIDIA.
• Monitor large institutional asset allocation changes, like BlackRock's adjustments to Chinese equity and gold weightings, as these can provide insights into evolving macroeconomic views and potential tactical opportunities or risks for diversified portfolios.
• Given the significant inflows into THRO and BAI are largely driven by BlackRock's model changes, investors should perform independent due diligence on these ETFs' underlying strategies and holdings to ensure alignment with their own risk tolerance and investment objectives before following such substantial flows.