BlackRock has launched a new factor ETF which homes in on the value risk premium within the US large-cap equity universe.

The fund provides exposure to just 40 US large-cap stocks with strong value characteristics.

The iShares Focused Value Factor ETF (FOVL US), listed on NYSE Arca, is linked to the FTSE Russell Focused Value Select Index.

The index draws its constituents from the parent Russell 1000 Index which is first screened to remove 10% of stocks with the highest risk (defined as one-year volatility of daily returns) and 10% of stocks with the highest leverage.

Remaining constituents are assigned sentiment scores based on estimates for earnings per share sourced from third party data providers. Securities with a negative sentiment score are excluded.

Those stocks making it through the previous screening rounds are assigned a value factor score based on four metrics: price-to-book, price-to-dividend, price-to-earnings, and price-to-cash flow from operations.

The 40 stocks with the highest value scores are selected to make up the final index which is equally weighted.

The index is reviewed monthly and a ‘target’ index is created which is the index that would result from a full reconstitution and rebalance; however, the current index will only rebalance into the target index if certain conditions are met. Primarily, this involves current constituents falling out of the Russell 1000 Index or the composite value factor score of the current index falling below 80% of the target index’s score.

As of 25 March 2019, the index was primarily exposed to stocks from the financials sector at 37.9%, while the industrials (14.6%), utilities (11.4%), energy (10.8%), and consumer discretionary (9.8%) sectors also played a significant role.

The fund comes with an expense ratio of 0.25%.

BlackRock already offers an ETF targeting the value factor within the US equity market – the iShares Edge MSCI USA Value Factor ETF (VLUE US). This fund is linked to the MSCI USA Enhanced Value Index, houses $3.4 billion in assets under management, and has an expense ratio of 0.15%.