iShares, the largest issuer of ETFs in the U.S. by total assets, rolled out another suite of funds on Thursday that offer targeted exposure to domestic and international equity markets. The new iShares minimum volatility ETFs are the latest in a trend of products targeting specific investment factors and disciplines, following similar offerings in recent weeks from Russell.
iShares, which also launched an emerging markets local currency debt ETF, debuted four products targeting low volatility stocks:
- MSCI USA Minimum Volatility Index Fund (USMV): Linked to an index consisting of U.S. stocks that exhibit lower absolute volatility than the broad U.S. stock market.
- MSCI EAFE Minimum Volatility Index Fund (EFAV): This ETF is linked to an index comprised of low volatility stocks from the EAFE region, which includes developed markets outside of North America.
- MSCI Emerging Markets Minimum Volatility Index Fund (EEMV): This ETF offers exposure to low volatility stocks in emerging markets such as China, Brazil and India.
- MSCI All Country World Minimum Volatility Index Fund (ACWV): This product covers the global equity market, offering exposure to low volatility stocks in both developed and emerging markets.
The indexes underlying these new ETFs begin with broad-based benchmarks covering the specific region, and then apply a rules-based methodology to determine weights that minimize the total volatility of the sub-index. iShares had previously offered ETFs linked to the broad-based benchmarks from which these funds will draw their components: EUSA, EFA, EEM and ACWI, respectively.
Low Volatility ETFs
While the new iShares ETFs are the first to be linked to these specific indexes, there are now a number of ETFs available that offer exposure to low volatility strategies. One of the more intriguing funds to debut in 2011 is the Emerging Markets High Income Low Beta ETF (HILO). That fund consists of emerging markets stocks that offer attractive dividend yields and relatively low correlations to their home markets.
Russell has also been a leader in the development of “factor ETFs” that target both high and low volatility stocks. The relative newcomer to the ETF issuer space already offers products targeting low volatility stocks within the Russell 1000 (LVOL) and Russell 2000 (SLVY).
iShares Ups Ante In ETF Price Wars
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Perhaps the most surprising aspect of the new iShares ETFs is the extremely competitive expense ratios. Each is among the cheapest in its respective ETFdb Category, and each is considerably cheaper than the broad-based counterpart products already offered. EEMV immediately becomes one of the cheapest emerging markets ETFs available. With an expense ratio of just 0.25%, only VWO (0.22%) is cheaper (Schwab’s SCHE also charges 0.25%).
EEMV is almost 45 basis points cheaper than the iShares MSCI Emerging Markets Index Fund (EEM), which has lost ground to low cost competitors in recent years. During the 12 months ended September 30, EEM had seen assets decline by nearly 40%, thanks to nearly $11 billion outflows in the first three quarters 2011. VWO, the low cost Vanguard ETF linked to the exact same index, saw assets increase by nearly 10% over that same time period, thanks to more than $7 billion in inflows during the first three quarters of the year.
The low volatility EAFE ETF, EFAV, is similarly cheap; at just 0.20%, it comes in well below EFA in terms of management fees (0.35%).
Disclosure: No positions at time of writing.
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