BlackRock, the largest provider of ETFs in Australia, through its iShares brand, has launched four new low-cost ‘smart beta’ funds. Smart beta, after fixed income, strategies are the most popular ETFs in the world at the moment.
Recently, BlackRock launched a suite of “iShares Edge Smart Beta” ETFs which encompassed low volatility and multi-factor strategies, aiming to provide low-cost outcomes-orientated returns.
According to Jon Howie, BlackRock’s head of iShares in Australia, the portfolios aimed to match the performance of the market, but at a lower risk. Interestingly, a lot of the take-up overseas with the funds had been with institutional investors, he said. He expected some of Australia’s major dealer groups to be among the first to recommend the ETFs locally.
David Griffith, from BlackRock’s multi-strategy group, said that investors were starting to use factors to manage their portfolios holistically – looking at asset allocation “through a factor lens”. They were also being used to benchmark their other active managers.
He also said that people found it difficult to “time” factors, which tend to perform within different cycles, which was why BlackRock and some other managers offered blended strategies. For example, value tends to have a long cycle before it outperforms whereas momentum (sometimes called ‘trend following’) has a much shorter cycle.
Meanwhile, BetaShares has listed a new ETF on the Australian Securities Exchange, designed to give investors exposure to companies in the ASX200 index that are outside the top 20 stocks.
BetaShares Australian Ex-20 is based on a float-adjusted modified market cap weighted index. The index methodology caps each industry sector weighting at 25 per cent and single stock weights at six per cent.
The index sponsor, Nasdaq, will be rebalanced each quarter.
Materials stocks currently make up 19.1 per cent of the portfolio, real estate 13.4 per cent, consumer discretionary 12.6 per cent, healthcare 10.8 per cent, industrials 10.7 per cent and financials 10.5 per cent.
The biggest stock holdings are Newcrest Mining, Sydney Airport, South32, AGL Energy, Insurance Australia Group, Goodman Group, ResMed, Stockland, Ramsay Health Care and Vicinity Centres.
The purpose of the fund is to provide diversification for investors whose Australian equity funds are weighted to the top stocks.
The fund’s fact sheet describes it as a “core portfolio holding providing broad market exposure but excluding stocks to which many investors are already exposed.”
The responsible entity intends to make semi-annual distributions.
BetaShares says the main risk factor investors need to take into account is exposure to small and mid-cap securities, which may make the performance of the fund more volatile than a fund holding top 20 stocks and which may make the fund less liquid that funds with large cap exposures.