iShares Plans Actively-Managed “Strategic Beta” ETFs

by on December 30, 2011

Light trading volumes and sparse activity on the product development front are to be expected in the final week of what has shaped out to be one of the most volatile years in financial history. Industry giant iShares has laid down the groundwork for three actively-managed equity ETFs targeting popular broad market sectors [see Active ETFs: Frequently Asked Questions].

With over 230 products on the market, iShares has filed with the SEC to bring to market three new active ETFs to add to their already impressive lineup. The proposals profiled below may appeal to investors who are seeking out ways to juice their portfolios’ returns amidst the uncertain economic backdrop:

  • iShares Strategic Beta U.S. Small Cap Fund: This actively managed ETF will seek to achieve long-term capital appreciation by maintaining strategic exposure to U.S. small cap stocks with targeted investment characteristics [see SEC Filing]. This fund will use a proprietary investment process to construct the underlying portfolio; domestic small cap stocks that exhibit certain quantitative investment characteristics, such as high quality earnings, low relative valuation and smaller relative market capitalization will be selected. Likewise, this ETF will underweight or entirely exclude companies which do not posses attractive valuations [see Small Cap ETFdb Portfolio]. The universe from which the holdings will be selected is comprised of U.S. small cap securities that include consumer discretionary, financial and industrial companies.
  • iShares Strategic Beta Developed International Small Cap Fund: This actively managed ETF will seek to achieve long-term capital appreciation by maintaining strategic exposure to international small cap stocks with targeted investment characteristics [see SEC Filing]. Similar to the above mentioned offering, this ETF will construct a portfolio of securities that are deemed to exhibit certain characteristics including: high quality earnings, low relative valuation and smaller relative market capitalization. The universe from which the holdings will be selected is comprised of international small cap securities that include consumer discretionary, industrial and materials companies.
  • iShares Strategic Beta U.S. Large Cap Fund: This actively managed ETF will seek to achieve long-term capital appreciation by maintaining strategic exposure to U.S. large cap stocks with targeted investment characteristics [see SEC Filing]. The underlying portfolio will consist of “high quality” securities that are selected using the same proprietary methodology as the above mentioned proposals. Potential holdings include U.S. large cap securities from consumer discretionary, energy, and financial companies [see Beyond SPY: Nine Alternative S&P 500 ETFs].

The filings also mentioned that because the ETFs would be actively managed, investors can expect a higher portfolio turnover relative to funds that track a passive index. iShares also noted that the funds would utilize currency forwards for hedging or trade-settlement purposes.

Disclosure: No positions at time of writing.