More Customization, Smart Beta for ETFs in 2014

Two trends in the exchange traded products industry were undeniably on prominent display last year: Increased usage of intelligent index or smart beta ETFs and increased development of bespoke ETFs. BlackRock’s (NYSE: BLK) iShares unit, the world’s largest ETF issuer, sees both trends gaining steam this year.

“2013 marked a strong year for ETFs as institutional investors increased their use of ETFs and new institutions such as regional banks, insurance general accounts and new global asset managers ‘test drove’ ETFs for the first time. In 2014, we believe investors will continue to grapple with a slow growth environment, slightly higher interest rates and global political uncertainty that could increase the risk of market volatility. ETFs will often be an important part of institutions’ investment toolkit tactically and strategically due to their ease of use, diversification, liquidity and access to targeted exposures,” said Daniel Gamba, Head of iShares Americas Institutional Business.

Regarding increased customization of ETFs, that trend emerged in earnest last year with more ETF issuers, including iShares, involving clients in the product development process. The result is a win-win for both parties as the client gets an ETF or ETN specifically tailored to its needs and the issuer is able to introduce a new product with a robust amount of capital, often over $100 million in assets.

Some so-called bespoke ETPs that launched last year include the Barclays ETN + Enhanced Global High Yield ETN (NYSEArca: FIGY) and the Barclays ETN + FI Enhanced Europe 50 ETN (NYSEArca: FEEU). Developed for Fisher Investments, FIGY and FEEU had over $2.2 billion in combined assets as of mid-December. [Some New ETFs Are Off to Fast Starts]

The iShares MSCI USA Momentum Factor ETF (NYSEArca: MTUM), iShares MSCI USA Size Factor ETF NYSEArca: SIZE) and iShares MSCI USA Value Factor ETF (NYSEArca: VLUE) were launched by BlackRock at the request of the Arizona State Retirement System and each ETF was seeded with $100 million in capital.