BlackRock, the passive investing powerhouse, has launched its first actively managed ETFs linked to its quant-based stock-picking group, Systematic Active Equity, whose role in the firm was elevated a year ago.
The suite of ETFs, called iShares Evolved, consists of seven sector funds trading on the Cboe BZX Exchange:
- iShares Evolved U.S. Technology ETF (IETC)
- iShares Evolved U.S. Consumer Staples ETF (IECS)
- iShares Evolved U.S Discretionary Spending ETF (IEDI)
- iShares Evolved U.S. Financials ETF (IEFN)
- iShares Evolved U.S. Healthcare Staples ETF (IEHS)
- iShares Evolved U.S. Innovative Healthcare (IEIH)
- iShares Evolved U.S. Media and Entertainment (IEME)
Each ETF marries the “ETF structure” with “the data science expertise of BlackRock’s SAE managers” and has an expense ratio of 18 basis points, according to a press release.
That data science has been used to develop a new sector classification system that replaces the standard GICS (Global Industry Classification Standard) with a more dynamic one to reflect the evolution of industries and companies.
Where GICS has 11 sectors, BlackRock’s system has 12, including two for health care: Healthcare Staples and Innovative Healthcare, and two for consumer discretionary: Discretionary Spending and Media Entertainment. Unlike the GICS sysem, there is no materials sector. Most importantly, one company can be included in multiple sectors.
Under BlackRock’s classification system, “a company’s total market capitalization is assigned to one or more sectors based on the words and/or phrases” used in its public filings to describe its businesses, according to the press release. The weightings in each sector is based on those words or phrases and can change over time.
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“The ‘traditional way’ of doing things meant using backward-looking inputs and required each company to sit within a single sector, and that raises complicated questions for investors,” said Jeff Shen, co-head of Investments for SAE.
“An investor who wants to gain technology exposure can do so by investing in a traditional technology sector fund, but it may have zero exposure to Amazon … which is why a new methodology may help investors better classify today’s businesses.”
Amazon is currently included in BlackRock’s iShares Evolved U.S. Technology ETF and in its iShares Evolved U.S. Discretionary Spending ETF.
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It evolved from an online book retailer to also become a technology services provider through its Amazon Web Services, a grocery stores operator through its acquisition of Whole Foods and, more recently, a health care services provider through the introduction of a private-label over-the-counter medicine business, which is only the beginning of its foray into health care.
Todd Rosenbluth, director of ETF and mutual fund research at CFRA, says the new iShares ETFs represent “a compelling strategy” that gives “more choice to investors who want to think more broadly about sectors. We’ll see if there’s demand for it.”
He noted that the introduction of these new ETFs follows the introduction of Vanguard’s first actively managed ETFs last month.