BlackRock extends iShares smart beta range with two new single factor ETFs

Jun 25th, 2015 | By | Category: Equities

BlackRock , the asset manager behind the market-leading iShares brand of exchange-traded funds, has expanded its smart beta product suite with the introduction of the iShares MSCI International Developed Size Factor ETF (ISZE) and iShares MSCI International Developed Value Factor ETF (IVLU) on the NYSE Arca.

iShares extends smart beta range with two new single factor ETFs

BlackRock has launched two new smart beta factor ETFs

The ETFs offer investors access to international equities exposed to the value and size factors. The offerings are well placed to benefit from the increase in demand for non-US equities, given the attractive relative valuations of international stocks and investor preference for factor-based investment tools, which can be used to enhance returns and manage portfolio risk.

Factor-based strategies set out to capture systematic sources of excess returns which have historically been observed over long time horizons. The size factor ETF aims to do this through increased exposure to smaller firms which may have a higher potential for growth compared to their larger counterparts. The value factor ETF aims to capture the excess returns achieved by investing in companies with low prices relative to their fundamental value. Both factors have been seen to perform best following market troughs and during the early recovery stage of the market cycle.

Given the time-varying nature of these factors there is an opportunity for investors to generate superior returns by timing rotations in and out of these strategies based on market conditions. For the longer-term investor, a strategic allocation to these factors could provide a source of outperformance versus market capitalisation-weighted indices.

Mark Carver, Head of US Equity Smart Beta at BlackRock, commented: “The introduction of the international value and size products is a natural extension of our smart beta suite. Client interest in smart beta is growing and, with the addition of these two new ETFs, investors now have even greater choice when looking to diversify portfolios and implement investment views across specific factors.”

The size factor ETF achieves its exposure by tilting its constituents towards low size and low volatility stocks by reweighting each constituent based on its risk characteristics. The value factor ETF selects stocks based on accounting measures of value, namely price-to-book value, price-to-forward-earnings and enterprise-value-to-cash flow from operations.

The funds seek to to track the performance of the MSCI World ex USA Risk Weighted Index and the MSCI World ex USA Enhanced Value Index by investing in a representative subset of those indices. The funds should exhibit a relatively low tracking error given they are generally invested in 90% of the index.

With a management fee of 0.30% per annum, the ETFs complement the existing iShares international developed single factor funds – iShares MSCI International Developed Momentum Factor ETF (IMTM) and iShares MSCI International Developed Quality Factor ETF (IQLT) – and sit alongside four US single factor funds – iShares MSCI USA Quality Factor ETF (QUAL), iShares MSCI USA Value Factor ETF (VLUE), iShares MSCI USA Size Factor ETF (SIZE) and iShares MSCI USA Momentum Factor ETF (MTUM).

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