We mentioned recent headlines concerning several dozen ETF closures recently, some from the largest ETF sponsors such as Blackrock iShares and PIMCO, but this appears to be part of the natural attrition process associated with the ETF product cycle and marketplace in general.
Speaking of iShares, two funds that were launched in the recent past, not closed, that we have never taken a deeper dive into are IELG (iShares Enhanced U.S. Large-Cap, Expense Ratio 0.18%) and IESM (iShares Enhanced U.S. Small -Cap, Expense Ratio 0.35%) which are often mentioned in the context of iShares’ foray into the “Enhanced” and “Factor” ETF sub-categories.
Most ETF strategists have heard of Factor investing and Factor ETFs themselves are still rather new to the marketplace, but these two products in particular come to mind particularly because an established ETF provider primarily known for their low cost passive index approach, are firmly involved in the “Actively Managed” ETF category via these products.
IEIL (iShares Enhanced International Large Cap, Expense Ratio 0.35%) and IEIS (iShares Enhanced International Small-Cap, Expense Ratio 0.49%) also come to mind in this product space, but today we will concentrate
primarily on the U.S. Domestic equity offerings.
IELG is the larger of the two products, with $62 million in AUM compared to IESM’s $15.1 million, with both of these funds launching in April of 2013. Trading volume on a daily basis may remain relatively low, but we do see evidence of larger block volume trades coming into the marketplace in both products since the June-July timeframe, and in general more daily participation even in terms of smaller volumes as the funds hit more institutional radars.
According to fund literature, the aim of these products revolves around “Instead of holding an entire broad market (like domestic stock ETFs), factor ETFs offer focused exposure to companies that have certain characteristics, like quality, value and volatility.
Because these “factors” have historically driven a significant portion of companies’ risk and return over time, you can use factor ETFs to potentially outperform the market.” We have covered the “Volatility” and “Individual Factor” ETFs such as USMV (iShares MSCI USA Minimum Volatility, Expense Ratio 0.15%), QUAL (iShares MSCI USA Quality Factor ETF, Expense Ratio 0.15%) and VLUE (iShares MSCI USA Value Factor, Expense Ratio 0.15%), which have become rather successful with $2.6 billion, $460 million, and $170 million in AUM respectively, noting that USMV rolled out way back in 2011.
Appropriate benchmarks for IELG and IESM are IVE (iShares S&P 500 Value, Expense Ratio 0.18%) and IJS (iShares S&P Small Cap 600 Value, Expense Ratio 0.30%) although there is not a ton of live performance understandably to measure off of yet.
iShares Enhanced U.S. Large-Cap ETF
For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.
Street One Financial is an educational/research firm utilizing the Broker Dealer services of Precision Securities, a FINRA registered Broker/Dealer.