BlackRock updates $2bn suite of multi-factor ETFs

Jun 7th, 2022 | By | Category: Equities

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BlackRock has implemented changes to two multi-factor equity ETFs including lowering the funds’ expense ratios and switching index providers from MSCI to Stoxx.

Lukas Smart, Head of US iShares Sustainable and Factors at BlackRock

Lukas Smart, Head of US iShares Sustainable and Factors at BlackRock.

The $1.1 billion iShares US Equity Factor ETF (LRGF US) has switched from tracking the MSCI USA Diversified Multi-Factor Index and is now linked to the Stoxx US Equity Factor Index. Its expense ratio has been reduced from 0.20% to 0.08%.

The $880 million iShares International Equity Factor ETF (INTF US), meanwhile, has switched from tracking the MSCI International Diversified Multi-Factor Index and is now following the Stoxx International Equity Factor Index. Its expense ratio has been lowered from 0.30% to 0.15%.

Both ETFs are listed on NYSE Arca.

Similar to the outgoing MSCI indices, the new Stoxx indices are focused on initial universes of large and mid-cap stocks listed in the US or in developed markets outside of the US.

Both sets of indices also utilize optimization techniques to select and weight constituents in order to achieve above-average, balanced exposure to multiple underlying factors while maintaining overall risk characteristics that are similar to broad market-cap-weighted benchmarks.

The Stoxx indices target the same four factors as the MSCI indices – quality, value, momentum, and low size – as well as an additional fifth factor, low volatility.

Individual factor returns have historically been cyclical and typically uncorrelated with each other. By targeting consistent exposure to multiple factors over time, multi-factor strategies seek to outperform traditional benchmarks over a full market cycle.

According to BlackRock, this potential for long-term outperformance, combined with low costs and practical portfolio and trading considerations related to diversification, turnover, and tracking errors, make the ETFs suitable as core portfolio holdings

Lukas Smart, Head of US iShares Sustainable and Factors at BlackRock, commented: “Investors and advisors alike can benefit by implementing thoughtful exposure to factors when building portfolios across asset classes and sectors. Our multi-factor ETFs enforce balanced, consistent positioning to five historically-rewarded factors at a low cost. Integrating factors can increase opportunities for incremental returns and be a differentiating strategy for core holdings used for long-term goals such as retirement.”

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