The actively managed exchange traded fund space is slowly gaining momentum, with BlackRock’s iShares filing for the Securities and Exchange Commission’s approval to launch three active equity ETFs that try to limit the effects of market volatility.
According to the filing, the iShares Strategic Beta U.S. Small-Cap Fund will hold at least 80% of its net assets in equity securities from U.S. small-cap issuers and will not try to replicate the performance of a specific index. Sector holdings will include consumer discretionary, financial and industrial components. [Active ETFs Seen Taking Off in 2012]
In another filing, the iShares Strategic Beta Developed International Small-Cap Fund will allocate at least 80% of its net assets in equity securities of international small-cap issuers and does not try to reflect the performance of a specific index. Sector allocations will include consumer discretionary, industrial and material holdings.
Lastly, according to a separate filing, the iShares Strategic Beta U.S. Large-Cap Fund will invest at least 80% of its net assets in equity securities of U.S. large-cap issuers and will not mirror the performance of a specific index. Sector allocations will include consumer discretionary, energy and financial companies.
All three funds will select component holdings based on high quality earnings, low relative valuations and smaller relative market-cap.
Additionally, these ETFs will have a higher portfolio turnover rate as they follow their active strategies, compared to funds that passively track a benchmark index. The active funds may also invest in currency forwards for hedging and trade settlements. The funds also reserve the right to lend up to one-third of their total assets.
These new SEC filings come at a time when other “smart beta” ETF strategies are growing in popularity. These types of low volatility, or “strategic beta,” funds try to mitigate the large swings in the market by screening for companies that have exhibited low volatility in their returns. The largest of which is the Powershares S&P 500 Low Volatility ETF (NYSEArca: SPLV).
For more information on active ETFs, visit our actively managed ETFs category.
Max Chen contributed to this article.