BlackRock is launching iShares Edge Smart Beta ETFs, a suite of four minimum volatility and multifactor funds designed to provide Australian investors with a low cost way to strengthen portfolios by targeting outcomes such as reducing risk or enhancing returns.
Following the launch, iShares will have the most comprehensive range of smart beta ETFs listed on the Australian Securities Exchange (ASX) (note 1).
Jon Howie, Head of iShares Australia, commented, “The new funds offer Australian investors the same opportunities that were once only accessible to large institutions, in a low cost, convenient and transparent manner. BlackRock is a leader in smart beta with over 30 years of expertise constructing factor strategies, and we have partnered with MSCI for these ETFs to deliver customised investments for the Australian market. In an environment with lower returns and increased volatility, being able to generate outperformance and reduce risk at low cost is increasingly important.”
These funds draw on factors, the underlying and persistent drivers of returns that are present in active investments, which have demonstrated long-term patterns of performance across asset classes. While the concept of factors is not new, their use is being revolutionised by technology, allowing factors to be isolated with greater precision and delivered in simple investment products, such as ETFs.
“BlackRock projects that smart beta ETF assets will reach US$1 trillion globally by 2020 and US$2.4 trillion by 2025 (note 2). Minimum volatility and multifactor funds are expected to be key drivers of future growth,” Mr Howie said.
The iShares Edge Smart Beta ETFs provide an easy and cost effective way to put factors to work in a portfolio:
| Fund name | Objective | ASX Code | MER (%) |
| iShares Edge MSCI Australia Minimum Volatility ETF | Reduce risk | MVOL | 0.30% |
| iShares Edge MSCI World Minimum Volatility ETF | Reduce risk | WVOL | 0.30% |
| iShares Edge MSCI Australia Multifactor ETF | Enhance returns | AUMF | 0.30% |
| iShares Edge MSCI World Multifactor ETF | Enhance returns | WDMF | 0.35% |
The iShares Edge Minimum Volatility ETFs are available across Australian and global equities. They seek to deliver market-like returns with less risk. Importantly, their benchmark indices have lost less during downturns, when broad markets have suffered (note 3). They follow indices that screen for low volatility stocks, take into account the correlations among them, and then generate optimised portfolios with guardrails in place to limit sector and country concentrations.
The iShares Edge Multifactor ETFs are also available across Australian and global equities. They offer exposure to companies that have the potential to deliver above-market returns over the long term. The funds focus on four time-tested drivers of performance, or factors: Quality (financially healthy firms), Value (inexpensive stocks), Size (smaller companies) and Momentum (trending stocks). They are designed for investors who want outperformance with similar risk and representative exposure to the broad market. They follow indices that capture stocks displaying high aggregate exposure to the four factors, while seeking to align with the risk profile and sector/country weights of the broad market.
“Establishing an appropriate asset allocation and staying invested in the markets are important determinants of successful investing, but volatility can unnerve investors, causing them to abandon their plans and jeopardise their long-term goals. The iShares Edge Minimum Volatility ETFs provide a new approach to managing volatility, and help give investors the confidence to stay invested,” Mr Howie said.
“For example, Minimum Volatility ETFs can be used in portfolios as a substitute for existing equity holdings, reducing overall portfolio risk by replacing standard market cap weighted index exposure.
“Another way they can be used is to top-up allocations to growth assets while taking on less incremental risk,” Mr Howie said.
“Most smart beta funds on the ASX are single factor exposures. With the iShares Edge Multifactor ETFs we want to give investors total access to the four major drivers of outperformance, with a similar profile to the broad market, at a fraction of the average cost of a traditional managed fund,” Mr Howie said.
BlackRock is a pioneer in factor-based investing and other smart beta investment strategies, with over 30 years of expertise in research and implementation (note 4). The firm manages more than US$142 billion in factor-based strategies globally and iShares offers more than 90 smart beta ETFs globally with over US$67 billion in AUM (note 5).
