TILT FlexShares Morningstar US Market Factors Tilt Index Fund

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 ETFs 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 level.

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 discretionary.

For competition, iShares looks to be up against FlexShares’ TILT, 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’ MOM 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 fees.

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 earnings.

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 PWV and FTA as popular competitors in particular.

Active ETFs

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 ETF world.

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. IELG will target Large Cap stocks while IESM 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 cap levels).

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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QS-US MN MOMNTM (MOM): ETF Research Reports
 
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PWRSH-DYN LC VL (PWV): ETF Research Reports
 
(SIZE): Get Free Report
 
FLEXS-MRN USMFT (TILT): ETF Research Reports
 
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