Daily ETF Watch: iShares Makes Index Changes

September 01, 2015

Yesterday, iShares switched the indexes on three of its ETFs, including converting one of its plain-vanilla funds into a smart-beta fund.

The $1.1 billion iShares MSCI USA Quality Factor ETF (QUAL | A-81) now tracks the MSCI USA Sector Neutral Quality Index, whereas previously it was tied to the MSCI USA Quality Factor Index. The main difference is that the new index doesn’t include the companies that exhibit the greatest degree of quality characteristics relative to the rest of the components in the parent MSCI USA Index, which was what QUAL’s previous benchmark did.

Instead, the new index selects companies that exhibit a greater degree of quality characteristics relative to the other companies in their respective Global Industry Classification Standard (GICS) sectors. This means that the sectors are likely to be more evenly represented in the index, as each will be guaranteed a certain degree of representation.

Meanwhile, the $647 million iShares MSCI USA Value Factor ETF (VLUE | A-90) no longer tracks the MSCI USA Value Weighted Index, but instead seeks to replicate the performance of the MSCI USA Enhanced Value Index. Similar to QUAL’s index change, the new benchmark seeks to select the most value-oriented companies in each GICS sector rather than simply selecting them from the parent index as a whole.

Finally, the $45 million iShares MSCI USA ETF (EUSA | B-100) abandoned the MSCI USA Index and became the iShares MSCI USA Equal Weighted ETF, which tracks the MSCI USA Equal Weighted Index. The move transforms what had previously been a plain-vanilla cap-weighted ETF into the latest addition to the smart-beta space. Equal weighting means that smaller-sized stocks have a greater influence on the movements of the index, while larger-cap stocks no longer dominate, exploiting the size factor.

The move could appeal to investors and boost asset flows into the fund, which had not garnered much attention when it was cap-weighted.


Contact Heather Bell at hb[email protected].

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