iShares International Developed Small Cap Value Factor ETF
Ticker: ISVL
Exchange: Cboe BZX Exchange, Inc.
Expense ratio: 0.30%
Original filing date: October 29, 2020
Effective date: January 12, 2021
Listing Date: TBD
CUSIP: 46436E510
Active: No
Index / Benchmark:
FTSE Developed ex US ex Korea Small Cap Focused Value
Index
Investment Objective:
Seeks to track the
investment results of an index composed of international developed market
small-capitalization stocks, excluding the U.S. and Korea, with prominent value
characteristics.
Investment Strategy / Index Methodology:
- Parent Index: FTSE Developed ex US ex Korea Small Cap Index
- Screen out 20% most illiquid, then
- Screen out 20% with highest volatility, then
- Screen out 20% with highest leverage, then
- 80%x80%x80% = 51.2%
- Exclude companies with negative sentiment score (more downgrades than upgrades), and
- Exclude negative price momentum (monthly price returns trailing 12 months), then
- Each company ranked by assigned weighted composite score (price-to-book, price-to-earnings and price-to-cash flow from operations)
- Number of companies selected is 25% of parent index company count (unclear if this means the top 25% as per their composite score, or just a random 25%)
- Weighted by their float adjusted market cap with a country constraint (?)
Constituents: 450 - 550
Adviser: BlackRock Fund Advisors
Adminstrator: State Street Bank and Trust Company
Fund accountant: State Street Bank and Trust Company
Custodian: State Street Bank and
Trust Company
Distributor: BlackRock Investments,
LLC
Legal counsel: WILLKIE FARR & GALLAGHER LLP
External accounting: PricewaterhouseCoopers LLP
Prospectus is here.
Principal Investment Strategies
The Fund seeks to track the investment results of the FTSE Developed ex US ex Korea Small Cap Focused Value Index (the “Underlying Index”), which is an objective, rules-based equity index provided by FTSE International Limited (the “Index Provider” or “FTSE”). The Underlying Index measures the performance of international developed market small-capitalization companies, excluding the U.S. and Korea, with prominent value factor characteristics, as determined by the Index Provider. The Underlying Index is a subset of the FTSE Developed ex US ex Korea Small Cap Index (the “Parent Index”), which measures the performance of the small-capitalization segment of the international developed market, excluding the U.S. and Korea, as defined by the Index Provider.
The construction of the Underlying Index begins with the Parent Index and excludes companies that are ranked in the least liquid 20% based on the 60-day average dollar value traded. The list of eligible constituents is then narrowed to exclude the top 20% of Parent Index constituents with the highest risk based on a 12-month trailing realized volatility. The list is further narrowed to exclude the top 20% of Parent Index constituents with the highest leverage, which is measured by comparing a company’s total debt to its total assets. Following these three initial screens, the remaining companies are evaluated to exclude companies with a negative sentiment score and negative price momentum. The sentiment score is calculated using the number of upgrades for earnings per share and the number of downgrades for earnings per share for a company's current and next fiscal year. A company with more downgrades for earnings per share than upgrades will have a negative sentiment score. Negative price momentum is determined based on monthly price returns over the trailing 12 months, excluding the latest month. The remaining companies are then ranked based on a weighted composite score of three value factor metrics; price-to-book, price-to-earnings and price-to-cash flow from operations (the “Composite Score”). The number of stocks selected is based on 25% of the Parent Index by count. The selected securities are weighted in proportion to their float adjusted market capitalization with a country constraint of +/- 10% relative to the Parent Index to form a baseline or target composition (the “Target Index”). The Underlying Index will be reviewed monthly and rebalanced to the Target Index if either of the following conditions are met: (i) the Underlying Index’s Composite Score is less than 90% of the Target Index’s Composite Score; or (ii) the Underlying Index has fewer than 20% of the number of securities by count of the Parent Index. If no rebalance is triggered, the component securities of the Underlying Index and their weights will remain unchanged. The Underlying Index may not rebalance for a period of time and is typically comprised of between 450 - 550 components.
As of December 31, 2020, a significant portion of the Underlying Index is represented by securities of companies in the industrials and real estate industries or sectors. The components of the Underlying Index are likely to change over time. As of December 31, 2020, the Underlying Index was comprised of 503 components.
BFA uses a “passive” or indexing approach to try to achieve the Fund’s investment objective. Unlike many investment companies, the Fund does not try to “beat” the index it tracks and does not seek temporary defensive positions when markets decline or appear overvalued.
Indexing may eliminate the chance that the Fund will substantially outperform the Underlying Index but also may reduce some of the risks of active management, such as poor security selection. Indexing seeks to achieve lower costs and better after-tax performance by aiming to keep portfolio turnover low in comparison to actively managed investment companies.
BFA uses a representative sampling indexing strategy to manage the Fund. “Representative sampling” is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment
profile similar to that of an applicable underlying index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield) and liquidity measures similar to those of an applicable underlying index. The Fund may or may not hold all of the securities in the Underlying Index.
The Fund generally will invest at least 80% of its assets in the component securities and other instruments of the Underlying Index and may invest up to 20% of its assets in certain futures, options and swap contracts, cash and cash equivalents, including shares of money market funds advised by BFA or its affiliates (“BlackRock Cash Funds”), as well as in securities not included in the Underlying Index, but which BFA believes will help the Fund track the Underlying Index. The Fund seeks to track the investment results of the Underlying Index before fees and expenses of the Fund.
The Fund may lend securities representing up to one-third of the value of the Fund's total assets (including the value of any collateral received).
The Underlying Index is sponsored by FTSE which is independent of the Fund and BFA. The Index Provider determines the composition and relative weightings of the securities in the Underlying Index and publishes information regarding the market value of the Underlying Index.
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