BlackRock has added to its suite of ‘megatrend’ portfolios – strategies that look beyond traditional sector classifications – with the launch of the iShares Cloud and 5G Multisector ETF (IDAT US).
Jeff Spiegel, Head of US iShares Megatrend and International ETFs.
Listed on NYSE Arca, the fund provides exposure to the cutting edge of digital infrastructure via companies operating in the cloud computing and 5G connectivity spaces.
Jeff Spiegel, Head of US iShares Megatrend and International ETFs, said: “5G and cloud infrastructure participate in a virtuous cycle. Broader 5G connectivity leads to faster download speeds and the commercialization of technologies like autonomous driving and surgical robots – solutions that will create a surge of data creation and lead to increased demand for cloud-based data storage.
“IDAT is an example of the critical tech-enabled innovation – in this case, the companies leading the race of delivering digital infrastructure – happening within key corners of equity markets.”
The fund comes with an expense ratio of 0.47%.
Methodology
The fund is linked to the Morningstar Global Digital Infrastructure & Connectivity Index which selects its constituents from a global universe of stocks with market capitalizations greater than $300 million and average daily trading volumes above $2m.
Morningstar’s Global Equity Research team assigns each company in the universe two thematic relevance scores related to the sub-themes of infrastructure as a service (i.e. the leasing of cloud services) and 5G connectivity. The scores, which may be either 0, 1, 2, or 3, represent a forward-looking assessment of the potential for a firm to derive significant economic benefits from that sub-theme.
Companies are then assigned to one of the two sub-themes depending on where its score is the highest. Within each sub-theme, companies are ranked according to the following criteria in descending order of importance: exposure score for that sub-theme, exposure score for the other sub-theme, whether the firm is a current index constituent, and inverse market capitalization.
The 25 highest-ranked companies from each sub-theme are selected for index inclusion. The weight of each sub-theme is set to 50% and constituents within each sub-theme are weighted by float-adjusted market capitalization subject to a single stock cap of 2.5%. The index is reconstituted and rebalanced annually in December.
As of the end of May, over two-thirds (69.8%) of the index was allocated to stocks from the US with the next largest country exposures being Taiwan (9.4%), South Korea (4.8%), Japan (3.0%), and China (2.8%).
Stocks from the information technology sector dominate with a combined weight of 84.2%. The index’s remaining sector allocation is distributed between real estate (8.5%), communication services (5.4%), and materials (1.9%).
Notable positions include Fortinet, MediaTek, Twilio, Marvell Technology, Skyworks Solutions, Micron Technology, Digital Realty, Microsoft, Monolithic Power Systems, and Taiwan Semiconductor, each holding a weight between 2.7% and 3.7%.
BlackRock now offers 15 megatrend ETFs which are categorized according to five broad categories: technological breakthroughs, demographics and social change, rapid urbanization, climate change, and emerging global wealth. Collectively, the funds house over $16.2 billion in assets.
Chad Slawner, Head of US iShares Product, commented: “With the recent acceleration of technological innovations to meet work-from-home demands, the explosion of e-commerce, and revolutionary healthcare advances, the future has become the present. The expansion of the iShares megatrend line-up signals investor demand for precise access to strategies that go beyond traditional sector, market capitalization, and geographic classifications.”