iShares Files For High Dividend, Low Volatility ETFs

by on January 31, 2011 | ETFs Mentioned:

iShares, the largest issuer of U.S. ETFs by total assets, continues to make plans to expand its product lineup with the filing of three new ETFs. While the company has been expanding heavily in country-specific funds as of late, it seems to have taken a step towards broader funds once again with this latest release. Although details remain scarce on the recently-proposed products, we highlight some of the key points made available in the filing below:

High Dividend Equity Fund: This fund would track the Morningstar Dividend Yield Focus Index, a benchmark that includes a group of U.S. equity securities issued by companies that have provided relatively high dividend yields on a consistent basis. Index constituents are drawn from the pool of stocks issued by U.S.-domiciled companies that trade publicly on the NYSE, the NYSE Amex Equities, or The NASDAQ Stock Market. The index is comprised of qualified income paying securities that are screened for superior company quality and financial health as determined by Morningstar, Inc.’s proprietary index methodology. Stocks in the underlying index represent the top 75 yielding stocks meeting the screening requirements [see High Dividend ETF Plays].

MSCI USA Minimum Volatility Index Fund: This fund would be linked to the MSCI USA Minimum Volatilty Index, a benchmark that includes equity securities in the top 85% by market capitalization of equity securities listed on stock exchanges in the U.S. that have lower absolute volatility. The underlying index begins with the MSCI USA Index, and then follows a rules-based methodology to determine weights for securities in the index that seeks to minimize total risk of the MSCI USA Index [see Smoothing Volatility Through ETFs].

MSCI EAFE Minimum Volatility Index Fund: This proposed fund seeks to track the MSCI EAFE Minimum Volatility Index, which is essentially an international version of the fund highlighted above. Beginning with the MSCI EAFE Index, a rules-based methodology is applied to derive a subset with lower volatility [also see The Guide To Volatility ETN Investing].

Currently, there are several popular funds linked to EAFE benchmarks, including the ultra-popular EFA. That iShares fund, the largest ETF in the Foreign Large Cap Equities ETFdb Category, tracks the MSCI EAFE Index and has close to $39 billion in AUM [see Beyond EFA: Five Alternative EAFE ETFs].

The dividend ETF space is already quite competitive. Currently, four funds tracking the large cap dividend market have amassed more than $1 billion in assets, including $5.3 billion for the SPDR S&P Dividend Fund (SDY). A number of other products–37 in total–are currently in the large cap value ETF space suggesting that competition will be intense for any new funds in this market. The proposed iShares fund would differentiate itself through the the Morningstar ‘distance to default’ measure as well as a ranking of firms’ competitive advantages [see the Guide To ETF Index Weightings].

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Disclosure: No positions at time of writing.