iShares Plans More Low-Volatility Equity Funds

April 08, 2011


iShares, the world’s-biggest exchange-traded fund firm, filed with the Securities and Exchange Commission to offer two more volatility-focused equity funds—one targeting an all-world stock index and the other emerging markets—designed to mitigate risk associated with their MSCI benchmarks.

The iShares MSCI All Country World Minimum Volatility Index Fund and the iShares MSCI Emerging Markets Minimum Volatility Index Fund, like two other funds iShares already put into registration, are designed to weight securities based on lower absolute volatility as a way of minimizing risk exposure.

The San Francisco-based ETF firm in January filed similar registration statements to offer the iShares MSCI USA Minimum Volatility Index Fund focused on U.S. equities as well as the iShares EAFE Minimum Volatility Index Fund targeting international stocks outside of North America.

Products designed to manage volatility have grown in popularity in the choppy recovery since the market crash of 2008-2009. The most successful, the iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX), has assets of $1.39 billion. However, VXX and products like it are more tactical futures-related tools, while the planned iShares ETFs seek to hold stocks that steer clear of the worst volatility.

iShares didn’t specify in the filing the tickers or expense ratios of its two new proposed funds.

All-World Index

iShares’ planned All World low-volatility fund will track the MSCI All Country World Index, or MSCI ACWI, which is capitalization weighted, and then layers on a rules-based methodology to determine the weight of the securities based on risk.

The index, as of Dec. 1, consisted of companies in the following 25 countries: Belgium, Canada, Chile, China, the Czech Republic, Egypt, Finland, France, Hong Kong, Indonesia, Ireland, Israel, Italy, Japan, Malaysia, Morocco, the Netherlands, the Philippines, Singapore, Spain, Switzerland, Taiwan, Thailand, the U.K. and the U.S., the filing said. The three largest industries by component weighting were financials, consumer staples and health care.

Emerging Markets Index

The developing markets minimum-volatility fund will be based on the popular MSCI Emerging Markets Index, which is used by big funds such as the Vanguard MSCI Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM).

Like its other proposed low-volatility funds, iShares will layer on a rules-based methodology to determine the weight of the securities based on risk, according to the second filing.

As of Dec. 1, the index consisted of 19 countries, including Brazil, Chile, China, Colombia, the Czech Republic, Egypt, India, Indonesia, Malaysia, Mexico, Morocco, Peru, the Philippines, Poland, Russia, South Africa, South Korea, Taiwan and Thailand. The index’s three largest industries by component weighting were financials, telecommunication services and consumer staples.


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