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BlackRock, Morningstar Broaden Style Indexes for U.S. Stocks

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When Morningstar formally launches a new index family for equity funds  known as the Morningstar Broad Style Indexes  in January, BlackRock’s nine iShares ETFs (now based on Morningstar equity indexes) will follow.

The nine iShares ETFs will adopt the new index benchmarks “no earlier than March 19, 2021,” according to BlackRock, and split their shares. No changes were announced for expense ratios.

The new Morningstar Broad Style Indexes “are broader and more diversified than the existing Morningstar Style Index family, yet they still align with the Morningstar Style Box,” according to Morningstar.

They “aim to empower investors through a more flexible and intuitive framework for building U.S. equity portfolios,” said Ron Bundy, president of Morningstar Indexes, in a statement.

BlackRock’s head of iShares America, Armando Senra, explained in a statement that the firm’s “growing relationship with Morningstar reinforces our value proposition and our willingness to use the scale of our platform to provide better solutions and outcomes for our clients.”

With that in mind, nine iShares equity ETFs based on Morningstar indexes and launched in 2004 will shift to the new benchmark Morningstar indexes, changing their names and ticker symbols  as follows, effective “no earlier than March 19, 2021,” according to BlackRock:

  • iShares Morningstar Large-Cap Value ETF (JKF) will become the iShares Morningstar Value ETF (ILCV) following the Morningstar U.S. Large-Mid Cap Broad Value Index instead of the Morningstar U.S. Large Value Index, and shares will split 2:1;
  • iShares Morningstar Large-Cap ETF (JKD) will become the iShares Morningstar U.S. Equity ETF (ILCB) following the Morningstar U.S. Large-Mid Cap Index instead of the Morningstar U.S. Large Core Index, and shares will split 4:1; and
  • iShares Morningstar Large-Cap Growth ETF (JKE) will become the iShares Morningstar Growth ETF (ILCG) following the Morningstar U.S. Large-Mid Cap Broad Growth Index instead of the Morningstar Large Growth Index, and shares will split 5:1.

Six other iShares ETFs benchmarked to Morningstar Indexes will keep their names but change their ticker symbols and their benchmark Morningstar equity indexes:

  • iShares Morningstar Mid-Cap Value ETF (JKI) will change its ticker to IMCV and its benchmark to the Morningstar U.S. Mid Cap Broad Value Index instead of the U.S. Mid Value Index, with its shares splitting 3:1;
  • iShares Morningstar Mid-Cap ETF (JKG) will get a new ticker  IMCB  and will track the Morningstar U.S. Mid Cap Index instead of the Morningstar U.S. Mid Core Index, with its shares splitting 4:1;
  • iShares Morningstar Mid-Cap Growth ETF (JKH) will change its ticker to IMCG and will track the Morningstar U.S. Mid Cap Broad Growth Index instead of the Morningstar Mid Growth Index, as its shares split 6:1;
  • iShares Morningstar Small-Cap Value ETF (JKL) will shift its ticker to ISCV and will track the Morningstar U.S. Small Cap Broad Value Extended Index instead of the Morningstar U.S. Small Value Index, as its shares split 3:1;
  • iShares Morningstar Small-Cap ETF (JKJ) will change its ticker to ISCB and will follow the Morningstar U.S. Small Cap Extended Index instead of the Morningstar U.S. Small Core Index, while its shares split 4:1;
  • iShares Morningstar Small-Cap Growth ETF (JKK) will shift its ticker to ISCG and will follow the Morningstar U.S. Small Cap Broad Growth Extended Index instead of the Morningstar U.S. Small Growth Index, as its shares split 6:1.

Todd Rosenbluth, director of ETF and mutual fund research at CFRA Research, says the iShares changes will ultimately better position BlackRock to compete with U.S. growth and value ETFs from Vanguard.

The changes also suggest that BlackRock will be working more closely with Morningstar, which now places fourth in the group of index providers that BlackRock ETFs work with, including MSCI, FTSE Russell and S&P Dow Jones, according to Rosenbluth.

“If Morningstar wants to be better known as an index provider, then this is a logical next step” for the firm, he explained.

He expects BlackRock will reduce the fees of the iShares ETFs based on Morningstar indexes in the near future to make them more competitive. Their fees currently are now several times bigger than the fees of many other iShares U.S. equity ETFs.

The iShares Core S&P U.S. Growth ETF (IUSG), which tracks an S&P growth index for large- and  and mid-cap stocks, for example, charges four basis points; the new iShares Morningstar Growth ETF (ILCG), which will track Morningstar’s large- and mid-cap broad growth index, is poised to charge the same 25 basis points that its predecessor, JKE, currently charges, unless those fees are cut. 

If BlackRock does cut fees for its ETFs that track Morningstar indexes, they will be better positioned to compete against Vanguard, State Street and Schwab, Rosenbluth said.

The nine iShares ETFs that track Morningstar Style Box indexes had a total $7 billion in assets as of Dec. 9. BlackRock’s iShares ETFs had $2.32 trillion in assets as of Sept. 30, accounting for about one-third of BlackRock’s $7.81 trillion in assets under management.

— Check out BlackRock: Welcome to the ‘New Investment Order’ on ThinkAdvisor.