iShares Going Backward With Renaming

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We reported last week that iShares altered how its ETFs are named, changing the words "Index Fund" to "ETF" and removing and simplifying some fund descriptions. I'm unconvinced this was a good thing.

On the surface, the changes make a ton of sense. By removing anachronisms like "Index Fund" and replacing it with the acronym ETF, iShares is moving toward the industry consensus on how things are labeled. That should have the positive effect of removing a potential source of confusion. And indeed, that's the stated goal. From the earlier article:

"One area of opportunity identified was to simplify our product messaging beginning with our fund names and investment objectives," a representative for iShares told IndexUniverse.

But there's a subtlety here. As we noted, they also removed the actual names of the indexes from a group of funds, specifically, most of the funds tied to Dow Jones indexes.

While it's easy to say, "investors don't care about indexes," I'm not convinced.

What's really going here is simple:Dow Jones, as a brand name for indexes, is clearly going the way of the dodo. Since it was acquired by S&P last year, pretty much everyone has assumed that, once all the dust settles a few years from now, S&P would be the surviving brand-name index company, with a few holdouts for things like the Dow Jones industrial average.

So by renaming its funds and rewriting the prospectus language to be generic, BlackRock is covering its bases should it want to end its relationship with Dow Jones. Why would it do that? To keep expenses down.

While I'm not privy to the terms of any of BlackRock's indexing contracts, it's not rocket science to see that rebranding the funds preemptively gets them flexibility.

It's important to note that they've only done this-as far as I can tell-to funds with Dow Jones or Barclays indexes. They haven't made the big leap, which would be to "debrand" the funds based on the big Russell and MSCI indexes, where institutional name recognition is very high.

But the writing is on the wall and I can't imagine this is anything but an opening salvo.

So why is this bad for investors?

Because while investors may not care, the underlying index choice is the single biggest determinant of your returns. Let's take IYF, now-without Dow Jones in the name-the iShares U.S. Financials ETF (NYSEArca:IYF). In financials, picking the right index over the last year got you nearly an extra 5 percentage points of return.

Financials Don't forget to check IndexUniverse.com's ETF Data section.

Copyright ® 2013 IndexUniverse LLC . All Rights Reserved.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: IYF , XLF

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