Investors Withdraw Billions from BlackRock Fund, Just Like in 2008

The main mortgage fund of BlackRock has experienced its worst month in history. In September, investors withdrew approximately $2.67 billion from the iShares MBS ETF (ticker MBB). According to Bloomberg data cited by Barchart, the fund has not seen such outflows even during the height of the 2008 crisis or during the pandemic.

The Bloomberg chart covers the period since 2007. The September drop is the deepest: minus $2,667 million for the month. Until now, the most painful episode was in 2019, when about $2 billion flowed out of the fund. For a fund that has mostly experienced moderate fluctuations in the hundreds of millions, such a one-time capital exit appears anomalous. However, it is still too early to speak of a long-term flight of investors: money was still flowing into the fund last summer, with inflows reaching about $1 billion in certain months.

The reason – is not panic, but a strategy reassessment. The yield on U.S. government bonds exceeded 5% in September, and mortgage securities lost out to risk-free treasury bonds. The fund itself lost about 3% over the month, lagging behind the broader bond market. The situation was exacerbated by mortgages: the rate on a 30-year loan jumped to 7.28%, meaning borrowers will stop refinancing, and holders of mortgage securities risk being stuck in low-yield assets for a long time. Moreover, nearly half of the outflow is a technical story. BlackRock itself shifted over $1 billion from the passive MBB to its actively managed mortgage ETF. Investors are not fleeing from mortgage debt – they are changing how they hold it. The question is what will happen next: if rates continue to rise, this one-time rotation could easily turn into a trend.