San Francisco-based iShares, the market leader in ETFs, is enjoying dominance in a variety of asset classes, sectors and industries. Managed by BlackRock Group, the issuer continues to hit the international market with the launch of two new products that aim at giving investors new options for factor investing.
The two funds – iShares Enhanced International Large-Cap ETF (IEIL) and iShares Enhanced International Small-Cap ETF (IEIS) – are actively managed and do not track the performance of a specified index. Notably, the two additions have raised the iShares factor ETFs line-up to 12 funds.
Both funds seek to provide competitive long-term risk adjusted returns relative to broad indexes for their respective cap levels. This is likely 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 cap levels).
Large Cap ETF in Focus
This ETF looks to provide exposure to the international developed equity markets with a focus on large cap stocks. Holdings 172 stocks in its basket, the product is widely spread across each security as none of these holds more than 2.11%. The fund charges 35 in annual fees.
From a sector look, the fund is slightly tilted toward financials which account for 24%, closely followed by energy (14.79%) and industrials (11.65%). Further, Japan, United Kingdom, Germany, Canada and Switzerland all make up for double-digit exposure in the portfolio.
IEIS: Small Cap ETF in Focus
This fund looks to target the small cap segment of the international developed equity markets and holds 389 stocks in its basket. The ETF is well spread out across each sector and security as each security holds less than 2.08% of the assets.
Sectors like financials, industrials, consumer discretionary, information technology and energy make up for double-digit exposure while others have modest allocations. With respect to country holdings, Japanese stocks dominate the fund’s profile at nearly 24% while United Kingdom (16.29%) and Canada (7.75%) round off to the next two spots. The ETF charges a slightly higher fee of 49 bps per year from investors.
How do they fit in a portfolio?
The new products appear to be interesting choices for investors seeking diversified exposure to the developed economies, excluding U.S., due to their unique features and approach.
Factor investing could prove beneficial for investors given their superior risk adjusted returns relative to broad traditional counterparts amid the recent volatility across the developed world. The strategy has been gaining immense popularity in recent years as this seeks to outperform the market over the long term.
This is especially true as the new funds are widely spread across number of countries, sectors, and securities. Smaller allocations could keep the portfolio balanced among various components and prevent heavy concentration.
Competition
These two have little in terms of competition as of now, as the international-focused actively managed market is 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 international stocks for active management in ETF form.