Mystery $3.7 Billion Pushed Through BlackRock ETF Stumps Traders

(Bloomberg) — In just a matter of weeks, $3.7 billion suddenly entered and then exited a BlackRock Inc. exchange-traded fund that barely had any day-to-day action over its 15 year life-span, leaving traders scratching their heads for clues as to what’s behind the move.

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On Jan. 25, after months of recording zero inflows, the iShares MSCI Kokusai exchange-traded fund (ticker TOK) brought in $3.7 billion, according to data compiled by Bloomberg. The ETF then continued trading like normal — with mostly zero flows — until the billions swiftly exited the fund over two separate trading days in February.

Billions of dollars in flows is rare for a fund that had less than $200 million in total assets at the beginning of the year and has until now mostly failed to generate investor interest in its strategy to buy large and mid-cap companies around the globe, excluding Japan.

“I’m genuinely perplexed,” said James Seyffart, ETF analyst at Bloomberg Intelligence.

A spokesperson for BlackRock declined to comment on the fund activity.

The sudden influx of cash could indicate a large asset manager is tweaking a model portfolio allocation, a strategy that has been suspected in a series of other mega flows. But to Seyffart, a model trade wouldn’t take three weeks to get in and out of a fund. The three week lag between the inflow and outflow also mostly negates guesses that the flow is a tax optimization re-balancing trade, known as a “heartbeat,” said Seyffart.

And to Cinthia Murphy, director of research at the ETF Think Tank, heartbeats don’t usually exceed the net asset value of the fund.

“We can only speculate that they are either washing assets in something else, like an SMA or an offshore product, or it’s a trade for a big institutional investor looking for exposure for a day, or maybe an options-related trade, something like that. It’s hard to tell, but it’s likely not a heartbeat for TOK,” Murphy said.

TOK has returned about 165% since inception, according to data compiled by Bloomberg, compared with 148% for the MSCI All-Country World Index.