iShares Files for International Quality and Momentum Factor ETFs - ETF News And Commentary

There seems to be no boundaries for iShares – the largest ETF issuer in the world –

when it comes to expanding to new markets. The issuer has been making continuous efforts to expand its already huge product portfolio having already launched two dozen products in the year-to–date period.

Continuing with this trend, the issuer has recently filed for two new products – iShares MSCI International Developed Quality Factor ETF and the iShares MSCI International Developed Momentum Factor ETF (read:

).

Both the above mentioned funds look to provide exposure to 22 international developed countries including Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.

Moreover, both the funds look to invest a part of their assets in futures, options and swap contracts and cash and cash equivalents.

For investors interested in the above two funds, we have highlighted some of the key details below.

The fund looks to follow the MSCI World ex USA Sector Neutral Quality Index, which is based on the MSCI World ex USA Index, and includes large and mid cap stocks listed in the U.S. The benchmark seeks to capture the performance of quality stocks (excluding U.S. stocks) by identifying companies that have the highest quality scores based on three main fundamental variables – high return on equity, stable earnings year-over-year growth, and low financial leverage.

However, the index intends to limit its exposure to just three sectors: consumer discretionary, financials and industrials companies (read:

).

The fund could be an interesting choice for investors looking to diversify their portfolio across the globe, but still wanting to hold stocks that have solid fundamentals, are safer bets, and could reduce volatility as well.  However, the fund might not be a good choice for investors looking to have well-diversified exposure across sectors, as the product looks to focus primarily on just the three aforementioned sectors.

Though there are some “quality” focused funds on the market tilted towards the U.S., we have some international funds in the group as well. In particular,

,

(

) and

(

) are a few funds that might pose competition.

Apart from these, we also have some international quality focused funds though with a focus on companies with high dividend yields. These include

,

and

Korea and Taiwan

As per the

, iShares MSCI International Developed Momentum Factor ETF will track the MSCI World ex USA Momentum Index to provide exposure to large and mid cap stocks exhibiting relatively higher price momentum characteristics. The focus is on price momentum, while maintaining trading liquidity, investment capacity and moderate index turnover.

The index looks to edge towards higher beta sectors like energy, financials, health care and industrials companies and away from those with low betas like utilities and staples (read:

).

There are just a few ETFs in the market that utilize momentum strategies for investors, and these are all U.S. focused.

(

) with an asset base of $529.6 million is the most popular and the most expensive ETF in the space. iShares' own product,

(

), is another popular fund in the space with an AUM of $367.2 million.

Hence, the proposed ETF, if approved, would be the first momentum ETF targeting the international space. This is expected to give the fund the first mover advantage, which might enable it to carve out a nice niche for itself.

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