BlackRock has launched a trio of new multifactor ETFs on Cboe BZX Exchange targeting the three main size segments of the US equity market.
BlackRock has launched three new multifactor ETFs targeting large, mid, and small-cap equities listed in the US.
The funds track indices from FTSE Russell that were designed in partnership with BlackRock’s in-house factor-based strategies group.
The iShares Factors US Blend Style ETF (STLC US) tracks the Russell US Large Cap Factors Blend Style Index and comes with an expense ratio of 0.25%.
The iShares Factors US Mid Blend Style ETF (STMB US) tracks the Russell US Mid Cap Factors Blend Style Index and has an expense ratio of 0.30%.
The iShares Factors US Small Blend Style ETF (STSB US) tracks the Russell US Small Cap Factors Blend Style Index and costs 0.35%.
Each index selects constituents from a parent universe that represents its targeted market cap segment – the Russell 1000 Index (large-cap), Russell Mid-Cap Index (mid-cap), and Russell 2000 (small-cap). For the small-cap index, the lowest 20% of stocks in the Russell 2000 when ranked by liquidity are not eligible for selection.
The constituents of each parent index are assigned a composite multifactor score based on an analysis of momentum, quality, value, size, and low volatility characteristics.
The methodology then uses an optimization process to select a subset of stocks and weights them so as to maximize the portfolio’s multifactor score while maintaining risk similar to the parent index. Interestingly, the optimization for the mid-cap index seeks to maintain risk similar to the Russell 1000.
There are currently 222 constituents in the large-cap index, 309 in the mid-cap index, and 641 in the small-cap index.
The funds offer the same multifactor approach as the iShares Factors US Growth Style ETF (STLG US) and the iShares Factors US Value Style ETF (STLV US) which launched in January 2020. These funds provide multifactor exposure to US large-cap stocks that have been pre-screened for either growth or value style characteristics.
BlackRock also offers a suite of multifactor ETFs in collaboration with MSCI. These funds utilize a similar methodology and target exposure to the same factors with the exception of low volatility.
Within the US equity space, the suite includes the $720m iShares Edge MSCI Multifactor USA ETF (LRGF US), expense ratio 0.20%; the $2m iShares Edge MSCI Multifactor USA Mid-Cap ETF (MIDF US), 0.25%; and the $300m iShares Edge MSCI Multifactor USA Small-Cap ETF (SMLF US), 0.30%.