iShares, the San Francisco-based global leader in
, has long had a dominant position in the ETF world. The company
was starting to slip a bit to start 2012 though, and responded
with a deluge of fund launches and fee cuts throughout the
These moves have likely cemented iShares' spot at the top for
at least a bit longer, especially thanks to a host of lower cost
products which can finally compete with the likes of Vanguard. If
lower cost funds and more innovative bond ETFs wasn't enough, the
company has also recently revealed new plans for two more U.S.
In the recent SEC filings, iShares detailed ideas for two
funds that have a domestic focus, but with a twist. One will
focus in on value stocks while the other will zero in on low risk
securities, potentially giving investors new options in these
Time to Consider Pure Growth and Value ETFs?
Yet before you rush out to look up more on these two, it is
worth noting that the filings were not complete and that key
information like ticker symbols and expense ratios were not made
available. Still, we have highlighted some of the most important
details below for those who are intrigued by iShares latest push
in the domestic equity market:
MSCI USA Risk Weighted Index Fund
This proposed ETF
looks to go beyond market cap weighting and instead focus on
stocks that have lower risk levels. The fund then looks to give
the biggest weights to these lower risk stocks, tilting the
portfolio to lower beta levels.
This risk looks to be calculated using the inverse of a given
stock's historical variance, estimated based on three years of
weekly return data. This generally results in a smaller average
market capitalization, and a focus on consumer stocks,
financials, and utilities, although this can obviously change
MSCI USA Value Weighted Index Fund
This proposed fund
seeks to offer up a new way for investors to target value stocks,
once again going beyond traditional cap weighting. This looks to
be done by tracking stocks with a lower market value compared to
well-established accounting measures of value (read
Try Value Investing with These Large Cap ETFs
These include book value, and then three year averages of
sales, earnings, and cash earnings. This results in a benchmark
that is tilted towards energy, financials and technology firms,
but much like in the risk product, this can change over time.
iShares could have a pretty difficult fight on its hands when
it comes to establishing a solid asset base in these two niches.
Both value investing and low risk targeting are strategies that
continue to see a great deal of interest among a variety of
In terms of the multifactor value model, arguably one of the
biggest competitors could be the
PowerShares FTSE RAFI US 1000 ETF (
. This fund has over one billion in AUM and utilizes the RAFI
technique in order to weight stocks.
The low cost product has nearly 1,000 securities in its basket
but it does see a relatively weak volume of less than 90,000
shares a day. However, bid ask spreads are relatively tight and
it is one of the most popular funds that breaks the link between
stock price and weight.
Meanwhile on the volatility side, a big competitor could be
the ultra popular
PowerShares S&P 500 Low Volatility ETF (
. This fund has over three billion in AUM and sees average daily
volume exceeding one million shares (see
Zacks Top Ranked Low Volatility ETF in Focus
The product doesn't weight purely by volatility though, so its
portfolio may be a little smaller than its proposed counterpart.
SPLV only has about 100 stocks in its basket, consisting of the
100 lowest volatility stocks, so it could be a more concentrated,
but lower volatility play, on the broad market.
These two examples are only the tip of the iceberg for the
competition that is awaiting any future value and low volatility
funds that iShares may launch. iShares will clearly have to rely
on their solid brand name in order to make inroads in this
competitive space, but if history is any guide, they should have
no trouble here either.
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PWRSH-FTSE RAFI (PRF): ETF Research Reports
POWERSH-SP5 LVP (SPLV): ETF Research Reports
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