Jeffrey Rosenberg, the firm’s senior portfolio manager on the systematic fixed income team, has a leading role in the firm’s liquid alternatives ETFs — which adopt a long-short strategy in ETF wrappers.

He contends the strategy provides valuable diversification amid the recent breakdown in the relationship between stocks and bonds.

“The great old adage around fixed income is ‘my bonds go up when my stocks go down.’ Now, we just went through a period in March with war risk where we clearly saw again on display… that doesn’t hold. And, really saw it in 2022,” Rosenberg told CNBC’s “ETF Edge” this week. “This entire post-Covid environment has really challenged that bedrock principle of the 60-40 portfolio that bonds are diversifying.” This also touches on aspects of portfolio.

client demand for liquid alts ETFs is growing because there’s a desire to diversify your diversifiers.

“We’re bringing the techniques that we’ve developed in the hedge fund side of our business, which primarily center around marketplace neutral, long, according to Rosenberg-short investing,” he added. “That’s the key kind of ‘a-ha moment’ for ETF investors to realize most of what they have exposure to in the ETF ecosystem is some kind of beta exposure.”

Rosenberg is a portfolio manager on two BlackRock liquid alts ETFs: the iShares Systematic Alternatives Active ETF (IALT) and the iShares Managed Futures Active ETF (ISMF). As of April 8, the firm’s website shows IALT is up almost 8% so far this year while the ISMF is up nearly 5%.

“What liquid alternatives bring to the table is the ability to look at other sources of return away from just marketplace directionality,” commented Rosenberg.

He highlighted a major challenge investors face on the stock economy side.

“Our equity portfolios have been more and more dominated by the significant, large cap tech winners,” commented Rosenberg. “With that concentration is a debt of diversification and a deficit of diversification value on the equity side. So, liquid alternatives can address both of these challenges to portfolio construction.” Furthermore, experts in earnings report note the continued relevance.

‘Something that’s going to zag when the sector zigs’

VettaFi’s Todd Rosenbluth still regards liquid alts ETFs as an emerging category.

“Overall, this is still relatively modest compared to traditional equity [and] traditional fixed income, but we are seeing advisors looking for something that’s going to zag when the sector zigs,” the firm’s head of research commented in the same interview.