On 6 October 2014, BlackRock expanded its smart beta platform with the introduction of an iShares Factor ETF series to help investors increase their risk-adjusted returns.
Each ETF provides investors with targeted exposure to a specific risk factor that offer an alternative source of returns to traditional market-cap weighted indices. Those four factors include: size, value, quality and momentum.
The iShares Factor ETF range focuses on global developed markets using the MSCI World indices. They include:
• Size – iShares MSCI World Size Factor UCITS ETF
• Value – iShares MSCI World Value Factor UCITS ETF
• Quality – iShares MSCI World Quality Factor UCITS ETF
• Momentum – iShares MSCI World Momentum Factor UCITS ETF
They can be used as part of a broad portfolio to diversify portfolio risk or used as niche exposures aiming to boost portfolio performance.
“Smart beta is important to us. It’s something we’re looking more closely at in response to client demand within the iShares product universe. These four factor ETFs are a response to that client demand,” says Ursula Marchioni, head of iShares EMEA equity strategy & ETP research.
The reason for this stated importance is that smart beta strategies were originally historically the preserve of institutional investors. Minimum volatility, momentum, dividend strategies, to name but a few, have been around for decades. However, they were only available to large investors who accessed them – on a bespoke basis – through segregated mandates.
Marchioni believes that what is happening now in the ETF landscape is quite revolutionary, particularly for the IFA market.
“What is really exciting at the moment is that we’ve seen a range of strategies that have proven to deliver value to institutional investors opening up and becoming available to retail investors. Due to the growth in AuM and the product set expansion of ETFs, these strategies have become available in a liquid and transparent wrapper for pension funds, asset managers and equally for IFAs. I think it’s important to stress that this is an important change in the investor landscape. These smart beta strategies were not historically directly available to the retail market but thanks to ETFs like iShares’ Factor ETF series, now they are,” says Marchioni.
Investors should not expect these factor ETFs to outperform benchmark indices in every market scenario but what’s really powerful is that each of these strategies will be delivering significant benefits in specific market conditions.
