iShares
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Learn more about value, quality and momentum
iShares ETFs cover a broad range of asset classes, risk profiles and investment outcomes. To understand the appropriateness of this fund for your investment objective, please visit our product webpage.
Find out more about iShares MSCI World ex Australia Quality ETF (IQLT)
https://www.blackrock.com/au/products/335480/
This product is likely to be appropriate for a consumer:
- who is seeking capital growth
- using the product for a major allocation of their portfolio or less
- with a minimum investment timeframe of 5 years
- with a high to very high risk/return profile
Find out more about iShares Edge MSCI Australia Minimum Volatility ETF (MVOL)
https://www.blackrock.com/au/products/284666/
This product is likely to be appropriate for a consumer:
- who is seeking capital growth
- using the product for a core component of their portfolio or less
- with a minimum investment timeframe of 5 years, and
- with a medium risk/return profile
Find out more about iShares MSCI World ex Australia Momentum ETF (IMTM)
https://www.blackrock.com/au/products/335486/
This product is likely to be appropriate for a consumer:
- who is seeking capital growth
- using the product for a major allocation of their portfolio or less
- with a minimum investment timeframe of 5 years
- with a high to very high risk/return profile
Factor Investing Explained
Remember how hard it used to be to book a Holiday? We used to spend hours on the phone with a travel agent, then wait days, even weeks for them to work their magic. And that magic came with a high fee because only travel agents had access to the important information needed to book our holiday.
But the information that was once only available to travel agents is now available to anyone – within seconds. Travel sites have made finding the perfect hotel cheaper, faster and more efficient. The same is true for investing. For years, active managers used teams of analysts to find stocks that seemed more likely to outperform. And as an investor, you had to pay a lot in fees to access that thinking.
Many of the traits that active managers have looked for (like buying underpriced, quality stocks) are called factors. And just like you no longer need to call a travel agent to book an affordable, quality vacation, you no longer need to pay large fees for active managers to choose the right stocks based on factors. Now, you can use iShares Factor ETFs to invest in stocks that exhibit the factors that have historically driven portfolio returns. Just as travel sites use simple filters to quickly drill down to the perfect hotel, factor investing provides access to security screens that active managers have used for generations.
Thanks to data and technology, the investment ideas that once took a team of analysts months to research now takes a fraction of the time, at a fraction of the cost.
There are five factors that have historically proven to be drivers of return, and iShares offers ETFs that seek to capture all five:
There’s Quality, which identifies companies with strong and healthy balance sheets.
Minimum Volatility, or stocks that are less volatile than the broad market.
Size, which targets smaller, more nimble companies.
Momentum, which seeks stocks on an upswing.
And value, which targets stocks that are inexpensive relative to their fundamentals.
Factor ETFs deliver the power of time-tested investment screens in a low-cost vehicle, revolutionising access for everyday investors.
Who said finding the right securities for your portfolio was difficult? We say, it’s as easy as booking a hotel.
What is factor investing?
Factor investing is the strategy of targeting securities with specific characteristics such as value, quality, momentum, size, and minimum volatility. These persistent, well-documented characteristics can help investors understand differences in expected return. They’re tools that professional investors commonly use to seek outperformance.
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Using factor ETFs
BlackRock has identified five factors — value, quality, momentum, size, and minimum volatility — that have shown to be resilient across time, markets, asset classes, and have a strong economic rationale.
Value
Invest in stocks that are lower cost relative to their peers.
Quality
Invest in companies with strong financials relative to similar cost peers.
Momentum
Invest in stocks that are outperforming and reduces exposure to stocks that are underperforming.
Minimum volatility
Invest in stocks that collectively have lower volatility than the broad market.
Multi-factor
Invest in stocks that possess key characteristics that have historically driven equity market returns.
Invest with style using factors
For years, professional investors have used factors as a strategic allocation to dial in a portfolio for what's appropriate for their (or their client’s) investment objectives.1 If they want to pursue greater expected returns, they can use factors to gain that exposure. If they want to manage risk, they can also use factors to manage the overall level of expected risk in a portfolio.
Investors can also use factors tactically. Factor investing can be linked to moments in a particular market cycle. New ETFs like iShares MSCI World ex Australia Quality ETF (IQLT) can be used where investors have a preference for companies that have higher quality levels of earnings. Or if there's an event coming up where there's some degree of uncertainty around the outcome, we've seen investors take positions in our iShares Edge MSCI Australia Minimum Volatility ETF (MVOL) in order to manage the overall level of risk in the portfolio without having to exit an asset class.2
Regardless of the use case be it strategic or tactical, we believe that investors prefer style investing with factors due to their systematic nature, their transparency and their cost effectiveness.
Not all factor ETFs are created equal
The underlying index of each iShares Factor ETF has been researched with Blackrock and MSCI to capture the targeted factor using a combination of company specific metrics.
Where these metrics are inherently different based on the activity of the company, the comparison is made on a sector basis to have a true “apples to apples” comparison. Sector bets versus the broad market are constrained in these portfolios as research has shown that there is no performance benefit to holding static overweight exposures to certain sectors.3
The iShares MSCI World ex Australia Momentum ETF (IMTM) is the only factor ETF where sector constraints are not applied. Research has found momentum at the security, industry and asset class level, so in this case it’s important not to constrain sectors.4
The potential impact of hedging on a fund’s distribution and taxable income has caused concern for investors in the past. The profit and loss from currency hedging may cause unexpected variations to taxable income and the dividends investors receive from the portfolio of securities.
One solution is to use a process called hedge accounting, which can help smooth out the fund’s distributions. The hedged factor ETFs use a hedge accounting method reviewed and agreed by the ATO, so investors can have confidence in an after tax outcome that better aligns to their expectations.
Hedging without the headache
The potential impact of hedging on a fund’s distribution and taxable income has caused concern for investors in the past. The profit and loss from currency hedging may cause unexpected variations to taxable income and the dividends investors receive from the portfolio of securities.
One solution is to use a process called hedge accounting, which can help smooth out the fund’s distributions. The hedged factor ETFs use a hedge accounting method reviewed and agreed by the ATO, so investors can have confidence in an after tax outcome that better aligns to their expectations.
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Adviser resources
What's in your benchmark?
We examine the factor exposures of several popular market capitalisation indexes and how they vary over time.
Demystifying ETF distributions
ETFs in Australia have grown quickly in both size and scope over the past decade. The choice on offer has also resulted in a range of distribution outcomes for Australian investors. So, why is that the case?
Our iShares Factor ETF range
Hedged factor ETFs may be expected to have a very high level of volatility and risk. This is not a recommendation to invest in any particular hedged factor ETF.
