Barclays Global ETFs: iShares Doing the Splits

Barclays Global International (BCS), creator of nearly 200 exchanged-traded products in its iShares line-up, has slated 16 for "the splits." Shareholders of record on the close of business, 7/21/08, will see the value of their shares go down, while the number of shares will go up accordingly.

For instance, the iShares Latin America 40 Index Fund (ILF) is trading at around $250. With the scheduled 5 for 1 split, the price will be adjusted down to $50. At the same time, a shareholder who may have had 100 shares of ILF at $250 will soon have 500 shares at $50.

Before you "freak" one day, and fear that your investment has dropped an ungodly amount overnight, here is a list of the exchange-traded funds that should split:

iShares MSCI Emerging Markets Index Fund                              EEM          3 for 1
iShares MSCI Pacific ex-Japan Index Fund                                EPP          3 for 1
iShares MSCI South Africa Fund                                                EZA         2 for 1
iShares MSCI EMU Index Fund                                                   EZU          2 for 1
iShares FTSE/Xinhua China 25 Index Fund                                FXI           3 for 1
iShares S&P Europe 350 Index Fund                               IEV           2 for 1
iShares S&P North American Natural Resources                      IGE           3 for 1
iShares S&P SmallCap 600 Growth Index Fund                         IJT            2 for 1
iShares S&P Latin America 40 Index Fund                                 ILF            5 for 1
iShares S&P 1500 Index Fund                                                    ISI             2 for 1
iShares S&P/TOPIX 150 Index Fund                                           ITF            2 for 1
iShares Russell Midcap Growth Index Fund                              IWP           2 for 1
iShares Russell Midcap Value Index Fund                                 IWS           3 for 1
iShares S&P Global Energy Sector Index Fund                          IXC            3 for 1
iShares Dow Jones Energy Sector Fund                          IYE            3 for 1
iShares Silver Trust                                                                   SLV         10 for 1

Practically speaking, a stock split (exchange-traded fund split) gives investors the potential to purchase more shares. The shares are, theoretically, more affordable to a broader base of buyers.

Most analysts believe that splitting, in and of itself, does little to increase the likelihood of new purchasing activity. However, there have been several studies conducted that indicate the contrary.

Rice University's David Ikenberry measured the 1-year and 3-year performance of all 2-for-1 stock splits occurring between 1975 and 1990.  Ikenberry learned that the collective performance of the 1,275 companies whose stock split 2-for-1 outperformed "non-splitters" by 8% over 1 year and 16% over 3 years. Ikenberry replicated his findings at the University of Illinois in a similar study conducted in 2003.

Of course, there's a big difference between individual company stock splits and exchange-traded fund splits. The latter is tracking an index. The announcement of ETF stock splits is not highlighting individual company success. Nor are all of these companies collectively reporting higher earnings or raising dividends -- events that are typically "timed" to coincide with stock split announcements.

Nevertheless, could stock splits in the ETF world drive up the price of those ETFs? Maybe. The reduced price per ETF share should attract many smaller investors. And, the announcements/coverage may also have a psychological impact on moving certain indexes higher.

(If you like South Africa from the list above, you might be interested on this piece about investing in North Africa.)

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

Comments

[johnthebear:]

How would a 3:1 split on FXI relate to FXP, the ProShares 2:1 inverse of FXI?

Also, how would a 3:1 split affect puts in FXI?

I would appreciate your insight on these questions.

2008 Jul 20 05:40 PM

[sbenard:]

Thanks for the advisement. You saved me a heart attack!

2008 Jul 21 08:04 AM