Blackrock value Rolls Royce

USA

BlackRock lists Rolls Royce Value factor ETF

BlackRock is adding one final arrow to its swelling quiver of US large cap value funds. Only this time it’s listing something very interesting and with a sharp row of teeth.

The iShares Focused Value Factor ETF (FOVL), which will list on US exchanges, starts with the Russell 1000 index. It then excludes the top 10% most volatile stocks and further excludes the top 10% with the most leverage.

Following these two initial screens, the remaining companies are evaluated to exclude companies with a negative sentiment score, which is determined by examining the prospective earnings per share estimates for the current and following fiscal year.

What companies are left, are then ranked based on a weighted composite score of four value metrics: PE, price-to-dividend, PB and PCF.

The top 40 ranked stocks are then equally weighted. The index will be reviewed monthly and rebalanced if any of the following conditions are met:

  1. the Underlying Index’s Composite Score is less than 80% of the Target’s Composite Score;
  2. the Underlying Index has fewer than 40 securities;
  3. the Underlying Index includes a security with weight greater than 20% of the Underlying Index;
  4. or the largest five securities by weight included in the Underlying Index have a weight greater than 50% of the Underlying Index.

If no rebalance is triggered, the weights will remain the same.

Analysis – a Rolls Royce instead of a tuk-tuk

BlackRock already has several US large cap value ETFs. But most of them, if they were a motor vehicle, would be tuk-tuks. They’ve all underperformed the S&P 500 the past five years. And they’re all closet trackers, exhibiting correlations with their market weighted counterparts of 0.95 or greater. (The iShares MSCI EAFE Value ETF (EFV) has had a correlation of 0.99 with its plain vanilla counterpart IVE.)

Yet with FOVL, BlackRock seems to have decided to put out a Rolls Royce value fund instead of a tuk-tuk. And decided to list an factor fund instead of a high margin closet tracker (to put the matter rudely). FOVL only holds 40 stocks, meaning its stock bets are relatively concentrated. It equally weights them, as the academic literature says factor funds should. And it includes some clever screens to weed out value trap stocks. All that seems to be missing, so far as factor funds go, is the short selling.

Will advisors pick this type of fund up? (Our analysis has led us to believe advisors may actually prefer closet trackers). We’ll have to wait and see. In the meantime, this is a brave and brilliant move. We hope to see more products like this in the future.

Taiwan

US sectors or corporate bonds

Taiwan’s biggest ETF provider Yuanta is listing three new sectoral bond ETFs, which target corners of the US debt market.

  • Yuanta US 10+ Investment Grade Healthcare Bond ETF (00787B) 0.40%
  • Yuanta US 10+ Investment Grade Utility Electric Power Bond ETF (00788B) 0.40%
  • Yuanta US 10+ Investment Grade Bank Bond ETF (00786B) 0.40%

Al of them will track indexes from FTSE.

India

UTI tracks the next 50

UTI, a Mumbai-based and publicly owned asset manager, is listing an ETF that tracks the “next 50 from the BSE. The UTI S&P BSE Sensex Next 50 ETF (UTISXN50) as its name suggest will track the next 50 largest and liquid stocks after the constituents of the S&P BSE SENSEX 50 in the S&P BSE LargeMidCap.

The index performance the past 10 years has been dazzling, providing an annualized average total return of almost 17%.

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