BlackRock Inc. officials announced Thursday morning that the company's iShares unit launched three new factor-based equity ETFs designed in conjunction with the investment staff of the Arizona State Retirement System and intended for use by institutional investors.
The exchange-traded funds are passive, and seek to help investors capture smart beta. They began trading Thursday.
The $28.4 billion Phoenix-based pension fund will be an initial investor in the three funds, Patrick Dunne, managing director and iShares head of global markets and investments, said in an interview.
Mr. Dunne would not disclose the amount the Arizona fund invested, but an informed source said the Arizona fund invested $100 million in each fund.
David Underwood, the pension fund's assistant chief investment officer, referred all calls to BlackRock.
The three funds and their indexes are: the iShares MSCI USA Momentum Factor ETF, based on the MSCI USA Momentum index; the iShares MSCI USA Size Factor ETF, based on the MSCI USA Risk Weighted Index; and the iShares MSCI USA Value Factor ETF, based on the MSCI USA Value Weighted index.
The offerings are not iShares' first foray into factor-based ETFs; the unit launched four low-volatility ETFs in 2011, which had about $6.3 billion as of April 17. Some $3 billion of that came into the funds since Jan. 1.
Not all entrants into the factor-based ETF world have been successful. Russell Investments launched a line of 25 factor-based ETFs based on custom Russell indexes in spring 2011, but closed all the funds by last fall. Together, the 25 funds had gathered only $310 million in assets. Russell officials said in announcing the closings that the market for the products was only in its early days.
iShares officials said they are confident there will be market demand, and say the input from the Arizona pension fund's investment staff will help. “It makes the product better and adds credibility,” said Scott Williamson, iShares managing director and institutional sales strategic account manager for U.S. pension funds, foundations and endowments.
Mr. Williamson said the new ETFs are aimed at institutional investors wanting exposure to a specific individual factor in their equity portfolio — value, size or momentum — so the funds' overweight or hedge a single factor that has historically been explained by a significant part of companies' return and risk over the long term.
