iShares, the world's largest ETF company, is looking to market
two U.S. equities
linked to MSCI benchmarks that weight securities based on risk and
In two separate filings, the company detailed plans for a
risk-weighted and a value-weighted ETF that track MSCI benchmarks
constructed around the broad, market-capitalization-weighted MSCI
USA Index, which comprises securities in the top 85 percentile by
Plans for such funds is part of a relatively new trend in the
worlds of ETFs and indexing centering on "smart beta" or so-called
strategy indexes that attempt to carve up the investment universe
on the basis of specific factors-in this case, risk and value.
The iShares MSCI USA Risk Weighted Index Fund tracks the MSCI
USA Risk Weighted Index, which "reweights" the securities comprised
in the broader MSCI USA Index in an effort to have those with the
lowest risk profiles represent a larger percentage of the mix.
Risk is measured as historical variance over a three-year period
of weekly return data, with those with the lowest variance ranking
highest in the portfolio, the filing said. In the end, the
methodology is designed to show lower realized volatility relative
to the parent MSCI index.
The iShares MSCI USA Value Weighted Index Fund applies the same
reweighting concept to the broader MSCI USA Index, but hones in on
stocks that show lower market value relative to "certain accounting
measures of value," such as book value, three-year moving average
of sales, earnings and cash earnings, the second filing said.
While energy, financials and information technology are the main
sectors comprised the value-weighted portfolio, consumer
discretionary and staples, financials and utilities companies
represent the majority of the risk-weighted ETF.
Both funds would join the iShares MSCI USA Index Fund
(NYSEArca:EUSA), which has gathered $155 million since it came to
market in mid-2010. EUSA has an annual expense ratio of 0.15
Neither filing disclosed planned tickers, fees or the exchange
where the ETFs will be listed.
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