BlackRock Expands Municipal Bond Offerings with New High-Yield Muni ETF
BlackRock, the world’s largest asset manager, has announced the conversion of its BlackRock High Yield Municipal Fund into an actively managed exchange-traded fund (ETF), introducing the iShares High Yield Muni Active ETF (CBOE: HIMU). This strategic move underscores BlackRock’s commitment to providing investors with innovative solutions that offer flexibility, transparency, and efficiency while capitalizing on the evolving landscape of municipal bond investments.
A Strategic Shift: The Evolution to an Active ETF
The decision to transition the BlackRock High Yield Municipal Fund into an ETF format aligns with the broader industry trend toward actively managed ETFs, which have gained significant traction in recent years. By leveraging the expertise of BlackRock’s renowned Municipal Bond Group, HIMU is designed to provide investors with tax-exempt high-yield solutions in a more accessible and liquid investment vehicle.
“Today’s higher interest rate environment provides a generational opportunity to capture income, particularly in the municipal bond market,” said Pat Haskell, Head of the Municipal Bond Group at BlackRock. “Through the ETF wrapper, HIMU aims to take advantage of the attractive yield levels and strong credit quality in municipal bonds, delivering alpha to our clients in an efficient and transparent manner.”
This move reflects BlackRock’s broader efforts to reshape its product lineup, offering clients access to high-performing strategies in structures that best align with modern investment needs. By converting the fund into an ETF, BlackRock ensures that investors benefit from lower costs, greater trading flexibility, and enhanced tax efficiency—three critical factors in today’s investment landscape.
Investment Objectives and Strategy
HIMU seeks to maintain the same fundamental investment objectives and policies as its predecessor mutual fund. The ETF is designed to maximize federal tax-exempt current income and capital appreciation by investing in high-yield municipal securities across various sectors. These include investments in revenue-backed municipal bonds issued by state and local governments, healthcare institutions, infrastructure projects, and other essential service providers.
The mutual fund, originally launched in 2006, has demonstrated strong performance over the years. It has consistently delivered top-quartile returns over one-year, five-year, ten-year, and fifteen-year periods as of December 31, 2024. Investors who have relied on the mutual fund’s performance can expect the same active management approach with the added benefits of the ETF structure.
HIMU leverages the depth and expertise of BlackRock’s Municipal Bond Group, which manages over $182 billion in assets. This extensive asset base spans diverse strategies, including investments in specific regions, states, local governments, sectors, and issuers. By harnessing BlackRock’s scale and research-driven approach, HIMU is well-positioned to deliver attractive returns while navigating the complexities of the municipal bond market.
Key Details of the iShares High Yield Muni Active ETF (HIMU)
- Ticker Symbol: HIMU
- Performance Benchmark: High Yield Customized Reference Benchmark, consisting of:
- 20% Bloomberg Municipal Bond Rated Baa Index
- 60% Bloomberg Municipal Bond: High Yield (non-Investment Grade) Total Return Index
- 20% Bloomberg Municipal Investment Grade ex BBB Index
- Portfolio Managers: Pat Haskell, Kevin Maloney, Ryan McDonald, Phillip Soccio, Walter O’Connor
The ETF’s investment team brings extensive experience in municipal bonds, ensuring an active approach to security selection and risk management. By dynamically adjusting the portfolio based on credit quality, yield opportunities, and macroeconomic factors, HIMU aims to optimize income potential while maintaining a prudent level of risk.
The Rise of Active ETFs and BlackRock’s Commitment to Innovation
BlackRock’s decision to convert the high-yield municipal mutual fund into an ETF is part of a larger trend in the investment industry. Active ETFs have become increasingly popular, allowing investors to access professional asset management with the liquidity and tax efficiency of ETFs.
Jorge del Valle Papic, Americas Head of Active Investments within Global Product Solutions at BlackRock, emphasized this strategic direction: “The growth of active ETFs is driving innovation and unlocking new opportunities for investors globally. This conversion underscores the strength of our product platform and our dedication to offering access to BlackRock’s premier active management capabilities through an investment vehicle that aligns with our clients’ evolving needs.”
BlackRock forecasts that global active ETF assets under management will surge to $4 trillion by 2030, representing a significant increase from the $900 billion recorded through June 2024. As investors seek more flexible, cost-effective, and tax-efficient investment solutions, active ETFs are expected to play a central role in modern portfolio construction.
Currently, BlackRock manages $37 billion in assets across 50 active ETFs in the U.S. alone. The firm has been at the forefront of this shift, continuously expanding its active ETF offerings to meet the changing needs of institutional and retail investors alike.
The Benefits of Converting to an ETF Structure
The conversion of the BlackRock High Yield Municipal Fund into HIMU brings several advantages to investors:
- Enhanced Liquidity and Transparency: Unlike mutual funds, which are traded at the end of the day, ETFs can be bought and sold throughout the trading session at market prices. This intraday liquidity provides greater flexibility for investors.
- Lower Expense Ratios: ETFs generally have lower expense ratios compared to mutual funds. By streamlining operational costs, HIMU aims to provide a cost-effective solution for investors seeking high-yield municipal exposure.
- Tax Efficiency: ETFs benefit from a more efficient tax structure compared to traditional mutual funds. The in-kind creation and redemption process helps minimize capital gains distributions, potentially reducing the tax burden for investors.
- Broader Market Accessibility: The ETF format allows a wider range of investors to access HIMU, including those who prefer the ease of trading ETFs over mutual funds.
- Seamless Transition: Investors who previously held the mutual fund can continue to benefit from the same investment strategy, now in an ETF wrapper. BlackRock has ensured that the transition is smooth, with no major disruptions to the investment process.
