iShares Launches 2 ETFs

April 05, 2018

Today, BlackRock’s iShares arm has brought to market two ETFs covering two very different asset classes. The iShares U.S. Infrastructure ETF (IFRA) targets U.S. infrastructure equities, while the iShares Bloomberg Roll Select Commodity Strategy ETF (CMDY) offers exposure to commodity futures without the added hassle of K-1 tax forms.

IFRA comes with an expense ratio of 0.40% and lists on Cboe Global Markets, the parent company of ETF.com. Meanwhile, CMDY has an expense ratio of 0.28% and lists on the NYSE Arca.

New Take On Infrastructure
While there are already a dozen ETFs targeting infrastructure stocks, IFRA falls into a smaller subgroup—infrastructure equity ETFs that only target U.S. companies. There are only two other funds that do so. IFRA’s index requires that its companies generate at least half of their revenues from within the U.S.

According to the prospectus, the new ETF tracks the NYSE FactSet U.S. Infrastructure Index, which draws its components from across the market-cap spectrum and from 95 different industries associated with infrastructure in the FactSet Revere Business Industry Classification System. Selected companies are sorted into two categories: infrastructure enablers, and infrastructure asset owners and operators.

“Investing broadly across the value chain allows investors to target a potentially pro-cyclical growth profile in the medium term and a more secular growth profile in the long term,” BlackRock said in a note.

“In particular, IFRA may allow investors to express a thematic view as it’s designed to offer exposure to U.S. companies that derive more than 50 percent of their revenue domestically, which could benefit from a potential increase in infrastructure activities in the U.S.,” it added.

The firm also pointed out in the note that the current political environment could offer opportunities for investors who focus on the U.S. as the country is widely acknowledged to be in need of infrastructure investment.

The infrastructure enablers category includes companies involved in construction, engineering, materials and the provision of machinery. The second category includes companies that engage in the transportation and storage of energy, the operation of utilities or rail transportation.

By focusing on these two quarters, IFRA is looking to provide exposure across the full value chain associated with the infrastructure space, the note says.

The two broad categories are each weighted at 50% of the index, while their respective components are also equally weighted. The index is reconstituted on a yearly basis, while weightings are reset on a quarterly basis, the prospectus says.

At just 40 basis points, IFRA is cheaper than its largest competitor, the $88 million Global X U.S. Infrastructure Development ETF (PAVE), which charges 0.47%.

iShares Joins K-1 Free Trend
With the launch of CMDY, iShares is jumping into the latest trend in commodity investing. Commodity futures are now being packaged in 1940 Act wrappers, structured as open-ended funds, rather than being structured as commodity pools.

Such funds generally invest in a subsidiary based in the Cayman Islands for the actual futures portfolio, which can represent up to 25% of the whole fund, while the main part of the portfolio is held stateside and usually consists of the collateral for the funds, investing primarily in fixed-income vehicles and cash equivalents. The funds are labeled as actively managed, but often the futures portion tracks an underlying index. Currently there are a dozen K-1 Free ETFs trading in addition to CMDY.

CMDY is the first K-1-free fund to be tied to the Bloomberg Roll Select Commodity Index, which covers 22 futures contracts and uses a roll strategy that seeks to target contracts on the futures curve that will provide maximum exposure to backwardation, while minimizing contango.

At 28 basis points, it is aligned with the lowest-cost commodity funds using a similar structure.

Contact Heather Bell at [email protected]

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