We reported last week that iShares altered how its
are named, changing the words "Index Fund" to "ETF" and removing
and simplifying some fund descriptions. I'm unconvinced this was a
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
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
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.
Don't forget to check IndexUniverse.com's ETF Data
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