iShares is easily the biggest ETF sponsor in the world. The
company dominates a number of important ETF segments and holds
roughly 42% of the total assets in the product class.
However, the firm has seen its market share erode in recent
months, largely thanks to innovative products from small players
as well as low-cost competition from big names like Schwab and
Vanguard. iShares has begun to fight back though, as the firm has
launched several new
in order to bring in more assets.
This trend is continuing here in April as the firm just put
out five more ETFs on the market. All of these track domestic
stocks and could allow iShares to stem the tide in terms of its
declining market share (also see
Who Says iShares ETFs Aren't Cheap?
However, all five will face severe competition from a number
of funds already on the market, so the quest for more AUM could
be a difficult one. Nevertheless, for those investors seeking new
plays on domestic stocks, we have highlighted some of the key
points from the new iShares launches below:
MSCI USA Size Factor ETF (SIZE)
This new ETF looks to track the MSCI USA Risk Weighted Index,
charging investors just 15 basis points a year in fees. While
some might think this is pretty similar to pure market cap funds
already on the market, it is important to note that this will
tilt towards smaller cap securities.
The benchmark looks to reweight each security using a
rules-based methodology so that stocks with smaller market caps
and lower risk weightings constitute a bigger chunk of the
assets. This results in a smaller market cap average for the
holdings, while it also could mean a lower realized volatility
This strategy ends up with a portfolio of over 600 stocks with
no one company accounting for more than 0.75% of assets. In terms
of sectors, financials take the top spot, while these are closely
trailed by consumer staples, utilities, and consumer
For competition, iShares looks to be up against FlexShares'
, another US-focused fund that tilts towards smaller cap
securities. This fund is still relatively young, though it has
developed a respectable asset base of just over a quarter
billion, a pretty good total for a relatively new issuer (see
3 Red Hot Dividend ETFs
MSCI USA Momentum Factor ETF (MTUM)
This fund seeks to track the MSCI USA Momentum Index, charging
investors 15 basis for this exposure. Holdings are a bit more
concentrated in this product, as the fund seeks to hold between
100 and 150 stocks in the portfolio.
Instead of a focus on size though, this fund will zero in on
stocks that have solid positive price momentum in risk-adjusted
terms. This is calculated by looking at the excess return over
the risk-free rate divided by the annualized standard deviation
of weekly returns over the past three years.
Then, these figures are analyzed for the trailing six and 12
month time periods and are given price momentum scores. These are
standardized at +/- 3 standard deviations and the standardized
z-scores are translated into average momentum scores in order to
determine the securities for inclusion.
Currently, this results in a portfolio that is heavy in
defensive sectors such as health care, consumer staples, and
telecoms, while consumer discretionary stocks also take up a big
chunk. Obviously, this can change at the rebalancing date, so
investors shouldn't think that this ETF will always focus in on
any one segment (See
4 Best ETF Strategies for 2013
Competitors are few and far between as of right now for this
ETF, though QuantShares'
could be a foe for assets. However, this product is far more
expensive, though it does look to short low momentum stocks and
buy up high momentum ones for its exposure profile.
MSCI USA Value Factor ETF (VLUE)
This ETF looks to focus on value in the broad American stock
market, tracking the MSCI USA Value Weighted Index for its
exposure. The fund looks to hold just over 600 stocks in its
basket and will charge investors 15 basis points a year in
VLUE will focus on large and mid cap stocks and will reweight
firms based on several valuation metrics. These include book
value, three-year moving averages of sales, earnings and cash
In terms of exposure, this results in a big chunk of assets
going to financials, followed by technology and energy. Holdings
are a bit concentrated considering the vast number of companies
in the ETF, as Exxon Mobil, Chevron, and JP Morgan combine to
take up roughly 7.7% of assets.
For competitors, the list is quite impressive as there are
literally dozens of funds that focus on value for their exposure.
Among the more fundamental choices, investors should be aware of
as popular competitors in particular.
iShares also released two active ETFs on to the market, the
first such funds for the company. This marks a huge departure for
the giant, suggesting that we may be entering a new era in the
The funds each focus on a specific cap level for their
exposure, giving investors active options in both the large cap
and small cap worlds.
will target Large Cap stocks while
will zero in on small cap American stocks for its objective (see
2 Niche ETFs Beating SPY
Both IELG and IESM seek to provide competitive long-term risk
adjusted returns relative to broad indexes for their respective
cap levels. This looks to be done by focusing on three important
factors; quality (consistent and stable earnings), value (lower
relative valuations), and size (firms with lower relative market
Beyond market cap levels, the two funds look to be different
in two other key ways. IELG will charge just 18 basis points and
hold 110 securities, while IESM will have over 260 stocks in its
basket and will cost 35 basis points a year in fees.
These two have little in terms of competition as of right now,
as the U.S.-focused actively managed market is still quite
sparse. However, this could change if iShares can see a good deal
of interest in these innovative products, potentially acting as a
huge catalyst for opening up U.S. stocks further to active
management in ETF form.
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FT-LRG CAP VAL (FTA): ETF Research Reports
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