BlackRock launches thematic ETFs on Inclusion & Diversity and Digital Security

Sep 21st, 2018 | By | Category: Equities

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BlackRock has unveiled a pair of ETFs – unrelated to each other – providing exposure to companies globally that are closely aligned with the themes of workplace inclusion & diversity and digital security.

BlackRock launches thematic ETFs on Inclusion & Diversity and Digital Security

BlackRock has launched a pair of ETFs based on Inclusion & Diversity and Digital Security.

The funds have been listed on London Stock Exchange in US dollars and on Xetra in euros.

Inclusion & diversity

The newly launched iShares Thomson Reuters Inclusion and Diversity UCITS ETF (OPEN LN) tracks the performance of approximately 100 publicly traded stocks across developed and emerging markets with the highest diversity and inclusion metrics.

The fund is linked to the Thomson Reuters Global Large/Mid Diversity & Inclusion ex Controversial Weapons Equal Weight Index, which uses the Thomson Reuters Global ex Frontier Large/Mid Cap Index as its starting universe of potential candidates.

The methodology first screens out companies involved in the production of controversial weapons. From the remaining securities, the 100 stocks with the highest Thomson Reuters Diversity and Inclusion Rating are selected. These ratings are based on a qualitative analysis incorporating 24 separate metrics across diversity, inclusion, people development and news controversy. A company must have non-zero scores in each of these four main areas to be eligible for inclusion. Stocks are equally weighted.

Of the largest country contributors, currently one-third (33.4%) of the index is allocated to companies from the US, with 11.9% from Germany, 6.6% from Canada, 6.3% from Australia and 6.1% from the UK. The index has significant exposure the consumer staples (19.6%), financials (19.2%), health care (17.5%) and consumer discretionary (12.3%) sectors.

The fund has a total expense ratio (TER) of 0.25%.

Its closest competitors are gender-equality ETFs from UBS and Lyxor, although these funds are more narrowly focused than the new iShares product. The UBS Global Gender Equality UCITS ETF (GENDER SW) and Lyxor Gender Equality ETF (ELLE FP) both come with TERs of 0.20% and track Solactive indices powered by analytics from Equileap. The ETFs focus on firms globally that are considered to be at the vanguard of empowering women in the workplace. GENDER recently passed the $100 million AUM milestone while ELLE houses some $60m in assets.

Digital security

The other new fund from BlackRock is the iShares Digital Security UCITS ETF (LOCK LN and L0CK GY).

This fund tracks the Stoxx Global Digital Security Index, which is derived from the Stoxx Global Total Market Index of developed and emerging markets stocks. The index targets companies which generate at least 50% of their revenue from the transmission, safeguarding and/or handling of sensitive data, and/or accessing data centres.

To be eligible for inclusion, stocks must have a three-month median daily traded volume (MDTV) greater than €1 million and a free-float market capitalization greater than €200m.

The selection process aims to have a minimum of 80 constituents at each annual review in June. If the screening process is too restrictive, the revenue filter is progressively lowered in steps of 5% until the number of constituents is equal to or greater than 80. There are currently 84 stocks in the index which are equally weighted.

The US and Japan are currently the largest country exposures with weights of 41.6% and 18.2% respectively. India (8.6%), Germany (5.1%) and South Korea (4.5%) make up the next largest weightings. Unsurprisingly, information technology is by far the largest sector exposure with a weight of 86.0% with industrials (13.1%) making up most of the remainder.

The fund has a TER of 0.40% and joins BlackRock’s nine-strong thematic ETF range, which cumulatively has $4.4bn in assets under management.

Rob Powell, Lead Strategist, iShares Thematic Investing, commented: “Better technology and data is aiding the development of products that help investors capture specific trends, and empowering people to question how effective their portfolios are in achieving intended outcomes. As more and more investors are getting to know ETFs beyond the broad equity market exposures, our focus is on expanding this choice of tools to build future-smart portfolios.”

BlackRock will no doubt be hoping that it replicates the success of the L&G ISE Cyber Security UCITS ETF (USPY LN), which has accumulated some $780m in AUM. The L&G fund was initially launched by ETF Securities in September 2015 before becoming part of Legal & General Investment Management (LGIM) following its acquisition of ETF Securities’ UCITS ETF platform.

The L&G fund tracks the ISE Cyber Security UCITS Index and has a TER of 0.75%.

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