On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research, Todd Rosenbluth, discussed the iShares U.S. Thematic Rotation Active ETF (THRO) with Chuck Jaffe of Money Life. The pair discussed several topics related to the fund to give investors a deeper understanding of the ETF overall.

Chuck Jaffe: One fund, on point for today. The expert to talk about it. This is the ETF of the Week!

Welcome to the ETF of the Week, where we get the latest take from Todd Rosenbluth, head of research at VettaFi. And if you go to VettaFi.com, you’ll find all the tools you need to be a savvier, smarter ETF investor, and to get more details on the new newsworthy, trending and timely ETFs that we talk about here.

Todd Rosenbluth, it’s great to chat with you again!

Todd Rosenbluth: It’s great to be back, Chuck.

Chuck Jaffe: Your ETF of the Week is…

Todd Rosenbluth: The iShares U.S. Thematic Rotation Active ETF. THRO.

Chuck Jaffe: THRO, the iShares U.S. Thematic Rotation Active ETF. A lot there, but this would certainly seem to be a fund for the times. Actively managed, willing to rotate, looking for signals. Is that all why this is the ETF of the Week?

Todd Rosenbluth: So, that’s part of the reason why. I’ll come back to what you said in a second. But the main reason this caught our attention is this is now an almost $4 billion ETF. In the beginning of the year, this was a $15 million ETF. It gathered $3 billion, or $3 billion went into this ETF, following a Blackrock model allocation change last week.

I figured it’s worth us diving in to why that might have happened, what investors are using those models. Advisors are using BlackRock’s models. They have $160 billion that are tied to their model allocation strategy. What does this mean for investors?

But this is an actively managed ETF, active large-cap ETF. You pay a premium. Let’s get that out of the way. It’s a 60 basis point fee, but it’s performing well and above the broader benchmark.

Chuck Jaffe: But that’s an interesting thing too, because again, this is a fund where virtually all of the money is new. Yet, it’s been around long enough that it’s got a five star rating from Morningstar. And it’s got a couple of years of track record. So, is the track record relevant when there was not really any money in it?

Todd Rosenbluth: So, yeah, I mean, this was a live fund that in the last three years plus has outperformed the S&P 500. That’s actually what it was. We believe what it was replacing within BlackRock’s model allocation strategy [was]that Blackrock reduced exposure to IVV, which is their S&P 500 ETF, and rotated into this actively managed ETF, and a couple of other ones as well.

But yeah, the track record is relevant. It doesn’t matter if people aren’t investing in it. They perhaps should have been! They would have been rewarded. Now, time will tell if three years forward, they will be happier with this change. But yeah, this is a fund that outperformed. It did what it was supposed to do. It’s warranting getting investor attention, getting the assets. Let’s talk more.

Chuck Jaffe: Let’s talk about what this fund is supposed to do, because thematic, rotation, active management… Those are the three pillars here.

Todd Rosenbluth: Yeah. So, thematic rotation is their way of — this is large-cap. It’s leaning on a way of looking at the strategy and using earnings, trends, and other factors that are to help Blackrock and its active management team, the iShares management team that’s behind this fund — help them sort through the universe of stocks. So there’s roughly 200, 250 or so stocks that are in the portfolio.

It is a subset of the large-cap universe. You know, the S&P 500 is of course 500 companies. This is a subset of that overall universe. And you get some of the same overlapping companies that you find within the large-cap space, Nvidia and Apple and Microsoft. But based on the themes that are in focus — Boston Scientific, Costco Wholesale, those are other top ten holdings within the portfolio.

Chuck Jaffe: Let’s talk about the methodology just a little bit. Because when we hear about a fund that puts rotation in the name, and thematic rotation… Well, themes, they don’t necessarily change super quickly. But right now, there’s a lot of turmoil and a lot of stuff going on. So, it is important to know how responsive a fund is.

Is this part of the attraction of this fund, that it is active and dynamically responding to themes? Whereas a rules-based passive approach would be like, hey, we check every quarter to see if we want to rotate. Is this about more active rotation? And is that a reason to watch, given that we just watched the market get bounced around pretty hard, you know, from the beginning of April to the end of May?

Todd Rosenbluth: Yeah. So, I guess a few things that you’re saying — yes, this is dynamic. There is not a set time period when the portfolio is to rebalance and is set to rebalance as quarterly or semiannually, the way that we have some of those smart beta index-based strategies. Of course, the S&P 500 barely makes changes. There’s a low single digit turnover, that happens on an annual basis.

Companies will go in and out, mostly on the periphery. Companies that either got acquired or they no longer met that criteria. But this is focused on long term structural forces and evolving trends. So, I think what we’re going to see in the portfolio is going to have the potential to move over time and move based on what’s in focus, as well as the valuation characteristics.

This is allowing investors that were in the S&P 500 an active alternative to have within their broader portfolio. But this is — I don’t expect this portfolio to change day to day, week to week, overnight. I think we’re still going to see some of those heavy hitter, large-cap companies that I touched on be in the portfolio when we come back to this in three or six months.

Chuck Jaffe: But it’s interesting. If you are an active investor, part of what you are trying to do is not strap yourself to the roller coaster. And anybody who’s been an index investor, man, the big decline in April and the big run up in May, well, the market may have gotten you back to basically even, but you don’t feel like you’re even. You feel like you’ve just been through a trauma.

So, do you believe that the key feature here might be the ability to mitigate that downside risk? Because the problem with active is sometimes that you see that decline, you make moves, and then you’re not there for the period where the market comes back. So, how do you weigh this? And, would you say that this is a fund for somebody interested in offsetting the active with the passive, in this case?

Todd Rosenbluth: So. I think what we’re finding is that folks are blending active and index-based strategies. And so this ETF from iShares could pair well with the S&P 500, with IVV, if you wanted to stay within the iShares family. Or of course, there’s State Street and Vanguard S&P 500 based products. But THRO, or throw — it’s easier to say that than spell it — has the nimbleness, the flexibility, and the active approach to have a chance to outperform. And as we’ve seen, outperform both during up times and down times. And it’s doing quite well this year as well. Despite having, you know, a much more volatile marketplace.

Chuck Jaffe: Yeah, the fund has been basically, you know, flat up as to the point where we’re recording this. Which, the market has been, more or less, just the market has been through the big conniptions as it responded. That all being the case, given that you’re looking for thematic and rotation and that the strategy is different, is this kind of the kind of thing that’s a permanent allocation? That it’s not so much about the times, it’s about the strategy in all times?

Todd Rosenbluth: Yeah, so if you are a strategic investor that’s not looking to make major moves, then this can be a core part of a portfolio. We think it can complement an index-based approach, whereas some of the more narrowly-focused thematic strategies that are either on artificial intelligence or healthcare technology, robotics — I’m just naming a few that come to mind — then those could be more tactical on and off type strategies.

This can fit as part of the core within a portfolio. We think that Blackrock has put it in as part of more of the core. And this, it’s important to note this is now a $4 billion ETF. So, it’s now on the radar of more investors, more advisors, because of this. Many people have a cut off of what they’re comfortable with.

So you might not have wanted to go into an ETF like THRO in the beginning of the year. But now, because there is $4 billion invested in it, it’s now perhaps worth taking a closer look.

Chuck Jaffe: It’s throw. THRO, the iShares U.S. Thematic Rotation Active ETF. The ETF for the week from Todd Rosenbluth at VettaFi. Todd, always a pleasure to chat with you. Look forward to doing this with you again next week.

Todd Rosenbluth: I’ll see you next week, Chuck.

Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And I’m Chuck Jaffe, and I’d love it if you check out my hourlong weekday podcast at MoneyLifeShow.com, or wherever you find your favorite podcasts.

Now, if you’re looking for information on your favorite ETFs, or what might become your next favorite ETF, no better place to go to for information then VettaFi.com, where they’ve got a full suite of tools that will help you out in your mission to improve your portfolio. They are on X at @Vetta_Fi, and Todd Rosenbluth, their head of research, my guest, he’s there as well. He’s at @ToddRosenbluth.

The ETF of the Week is here for you every Thursday. But make sure you don’t miss an episode by following along and subscribing on your favorite podcast app. And we’ll be back next week with another ETF for you to consider. Until then, happy investing everybody!

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