BlackRock introduces its bitcoin ETF into model portfolios

The world’s biggest asset manager is finally allowing Bitcoin into its $150 billion model-portfolio universe. 

BlackRock Inc. is adding a 1% to 2% allocation to the $48 billion iShares Bitcoin Trust ETF (ticker IBIT) in its target allocation portfolios that allow for alternatives, according to an investment outlook viewed by Bloomberg. 

While that’s a small subset of BlackRock’s entire model portfolio business, the addition opens up a potential avenue of new demand for IBIT at a time when cryptocurrency sentiment is souring. Model portfolios, which package together funds into ready-made strategies to sell to financial advisers, have boomed in recent years and tweaks to their holdings can result in massive flows in either direction.

“We believe Bitcoin has long-term investment merit and can potentially provide unique and additive sources of diversification to portfolios,” Michael Gates, lead portfolio manager for BlackRock’s Target Allocation ETF model portfolio suite, wrote in investment commentary dated Feb. 27th. 

The move by BlackRock comes as Bitcoin prices crater alongside stocks, with a toxic brew of economic concerns and trade tensions weighing on risk appetite. The cryptocurrency is currently trading around $83,000, after reaching nearly $110,000 last month.

Bitcoin’s famed volatility is a core reason why the asset manager mapped out a 1% to 2% weighting as a “reasonable range” in a December paper from the BlackRock Investment Institute. At the time it added that anything beyond 2% would sharply increase crypto’s share of overall portfolio risk.

IBIT’s January 2024 launch was one of the most successful debuts on record, with the fund absorbing more than $37 billion worth of inflows last year alone. While appetite has sputtered recently — investors have pulled $900 million over the past week — demand from advisers for exposure within model portfolios was strong, according to BlackRock.

“They all want to allocate more to alternatives, but they need guidance on how to size, scale, and rebalance the position,” Eve Cout, head of portfolio design and solutions for US Wealth at BlackRock, said in an interview. 

The IBIT addition was just one of several allocation adjustments outlined in Thursday’s letter. Cooling earnings expectations led the firm’s model-portfolio team to trim its overweight to equities to 3% from 4%, while bringing its tilt to growth strategies versus value trades closer in-line. Within fixed-income, BlackRock is reducing its long-duration exposure.

Billions of dollars flowed between several BlackRock products on Thursday as a result. Among the most notable flows was a record $2.3 billion influx into the iShares 10-20 Year Treasury Bond ETF (TLH), while $1.8 billion exited from the iShares 20+ Year Treasury Bond ETF (TLT). 

A BlackRock spokesperson confirmed that the firm adjusted its model portfolio allocations.

“Our conviction is still in stocks over bonds, US over international, growth over value and tech over the rest of the market,” Gates wrote. “But the magnitude of each of those directional views is something we look to reduce.”