8868 ishares deepens price war with minimum volatility etfs

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iShares Deepens Price War With Minimum Volatility ETFs

Written by Journal of Indexes Europe Staff

  
February 22, 2013


BlackRock’s iShares has deepened Europe’s ETF price war by launching its first range of minimum volatility exchange-traded funds at annual fees that substantially undercut similar products from competitors. The new “smart beta” trackers are also priced at a surprising discount to some of iShares’ simpler index ETFs.

The four new physically backed trackers are the iShares S&P 500 minimum volatility, MSCI Europe minimum volatility, MSCI World minimum volatility and the MSCI Emerging Markets minimum volatility ETFs. The funds carry annual total expense ratios of 0.2, 0.25, 0.3 and 0.4 percent, respectively.

The ETFs, which are first of their kind on their respective indices, have been listed on the London Stock Exchange and give investors access to a range of markets while aiming to offer reduced volatility compared to standard market capitalisation-weighted indices.

The indices underlying iShares’ minimum volatility funds follow a so-called mathematical “optimisation” to construct portfolios that aim to carry lower levels of risk. This optimisation uses both stocks’ historical risk and the previous correlations of stock price movements to produce a portfolio that is designed to give a smoother ride to investors than a standard equity index fund, which uses stocks’ market capitalisations to determine index weights.

iShares’ minimum volatility ETFs follow a similar construction methodology as the so-called minimum variance ETFs offered by competitors in the European ETF market, such as Ossiam.

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