BlackRock launches iShares MSCI EMU Multifactor ETF

Mar 6th, 2018 | By | Category: Equities

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BlackRock has launched the iShares Edge MSCI EMU Multifactor UCITS ETF (EDMF GY) on Deutsche Börse.

BlackRock launches global aggregate bond ETF

BlackRock also offers six iShares Edge ETFs derived from the parent MSCI Europe Index.

The fund, an extension of the ‘iShares Edge’ suite of smart beta ETFs, consists of a portfolio of companies listed in developed eurozone markets that have been selected to maximise exposure to four factors: value, momentum, size and quality.

The fund tracks the MSCI EMU Diversified Multiple-Factor Index, which is based on the MSCI EMU Index, its parent index, including large and mid-cap stocks across Austria, Belgium, Finland, France, Germany, Ireland, Italy, the Netherlands, Portugal and Spain

The index aims to maximize exposure to the four factors while maintaining a risk profile similar to that of the parent index.

These factors have, over time, provided higher return than the overall market.

Individual stock factor exposure is determined as follows: Value is measured using price/earnings, price/book and enterprise value/operating cash flow ratios; Momentum is measured by share price performance; Size is measured by market capitalisation; and Quality is measured by return on equity, level of debt and earnings volatility.

The index is constructed using an optimization process that determines the optimal set of securities with the highest possible factor score whilst adhering to country and sector exposure weight caps and achieving an expected level of risk equal to that of the parent index.

Looking at back-tested data over the past ten years (as of 31 January 2018), the multifactor index has significantly outperformed its parent index with a lower volatility.

It has returned 6.9% per annum with an annualized standard deviation of 17.1%, compared to 3.7% annual return and 17.4% standard deviation for the benchmark. While this outperformance is clearly impressive, potential investors should be aware of back-testing bias and future outperformance is not guaranteed.

iShares BlackRock MSCI EMU Multifactor ETF

Source: MSCI.

The multifactor index has 78 constituents, compared to 248 for the parent index. Similar to its parent index, France and Germany lead the country exposures with 37.9% and 28.3% respectively, followed by the Netherlands (11.3%), Spain (7.0%) and Finland (5.4%).

The largest sector exposures are financials (21.6%), industrials (19.7%), information technology (13.5%), materials (12.8%) and consumer discretionary (12.1%).

The fund trades in euros and has a total expense ratio (TER) of 0.40%. Income generated from constituents is accumulated within the portfolio.

EDMF is the first iShares Edge ETF issued by BlackRock that is derived from the MSCI EMU Index; however, six iShares Edge ETFs based on the broader MSCI Europe Index are also currently available. These include a similar multifactor offering, a minimum volatility ETF, as well as five single factor ETFs covering value, momentum, quality and size factors.

The MSCI Europe multifactor ETF has a TER of 0.45% while the other funds in the suite cost 0.25%. The largest ETF in the suite is the iShares Edge MSCI Europe Value Factor UCITS ETF (IEVL LN) which has €1.5 billion in assets under management.

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