Tom Fekete, Head of EMEA Product, iShares at BlackRock.
BlackRock has unveiled a suite of four thematic iShares exchange-traded funds that are designed to profit from four key global ‘megatrends’: ageing populations, healthcare innovation, robotics and automation, and digitalisation.
According to BlackRock, megatrends are “global economic, social, technological and demographic shifts that can have a major influence on everyday lives and are expected to become more important over the coming decades.”
The funds have been listed on the London Stock Exchange and are registered for distribution across much of Europe. Each fund is physically replicated and has a total expense ratio (TER) of 0.40%. European cross-listings, including on Deutsche Börse, are anticipated to follow.
They are:
– iShares Ageing Population UCITS ETF (LON: AGED)
– iShares Healthcare Innovation UCITS ETF (LON: HEAL)
– iShares Automation & Robotics UCITS ETF (LON: RBOT)
– iShares Digitalisation UCITS ETF (LON: DGTL)
Commenting on the launch Tom Fekete, Head of Product for iShares EMEA at BlackRock, said: “Megatrends are affecting the way we live and work. These ETFs look to capture the opportunities created by long-term structural trends, by identifying the companies most aligned to them. They are a new set of tools that investors can use to express their views on these trends, in a transparent, global and cost-efficient way.”
The ETFs’ underlying indices – the iStoxx FactSet Thematic Indices – have been created by index provider Stoxx in collaboration with FactSet, a provider of financial analytics and information.
Matteo Andreetto, Chief Executive Officer, Stoxx, said: “Research shows that the disruptive megatrends captured by the iStoxx FactSet Thematic Indices will play a major role in the transition towards a digital, highly technological world that seeks to find alternatives to current healthcare approaches and effective solutions related to an increasing life expectancy.”
Jeremy Zhou, Head of Indexing at FactSet, added: “Identifying specific theme-related industries in a systematic and precise manner has always been a challenge. By leveraging the FactSet Revere Business Industry Classification System (FactSet RBICS), with its more than 1400 granular industry levels to assign company exposures, Stoxx and BlackRock have selected an ideal solution for delivering such precision into the thematic portfolio construction process.”
To be eligible for inclusion in one of the indices, companies must derive at least 50% of their revenue from the designated theme of the index. This ensures that the most relevant companies for a given theme are consistently maintained. Additionally, companies must have a 3-month average daily trading volume (ADTV) of at least one million euros and a free-float market capitalization greater than 200 million euros.
To avoid concentration risk, each index has a minimum of 80 constituents, which are then equally weighted. If the screening process results to be too restrictive for an index, the revenue filter is progressively lowered in steps of 5% for that particular index, until the number of constituents is equal to or greater than 80.
Ageing populations
The iShares Ageing Population UCITS ETF trades in US dollars (LON: AGED) and pound sterling (LON: AGES), and is linked to the iStoxx FactSet Ageing Population Index. The index tracks companies positioned to benefit from the growing needs of an older global population, such as those companies that own or operate senior living facilities, manage speciality hospitals, provide nursing services or are engaged in biotech research for age‐related illnesses. According to iShares, it is expected that by 2030 13% of the population will be 65+, representing 1bn people.
The index is significantly weighted towards the healthcare (35.3%) and insurance (28.8%) sectors, while the financial services (10.3%) and retail (8.2%) sectors also make a notable contribution. The largest country weights are the US (35.7%), Japan (12.7%), South Korea (7.0%) and Australia (6.8%). The index, which is reviewed annually in June, is up 1.2% year-to-date (YTD) and 13.6% per annum over the past five years using back-tested data.
Source: Stoxx.
While the fund is the first of its kind in Europe, there are several ETFs trading in the US which seek to take advantage of the ageing theme. These include the Janus Long‐Term Care ETF (NASDAQ: OLD), launched in June 2016, tracking the Solactive Long-Term Care Index, and the Global X Longevity Thematic ETF (NASDAQ: LNGR), launched in May 2016, tracking the Indxx Global Longevity Thematic Index.
Healthcare innovation
The iShares Healthcare Innovation UCITS ETF (LON: HEAL) trades in US dollars and pound sterling (LON: DRDR), and tracks the iStoxx FactSet Breakthrough Healthcare Index. The index tracks companies focused on advancing specific aspects of the healthcare industry, including drug treatments, patient care and diagnostic tools. According to iShares, the healthcare market is projected to be worth $10.3tn by 2020 compared to $7.2tn in 2013.
The largest country exposures are the US (51.6%), South Korea (14.9%), Japan (7.8%) and Belgium (4.8%), while stocks in the healthcare sector understandably make up the vast majority of the index (92.7% weight). Using back-tested data, the index is down 1.7% YTD but up 21.4% per annum over the past five years.
Source: Stoxx.
While also a first for the European market, the fund is similar to the Principal Healthcare Innovators Index ETF (Nasdaq: BTEC), which launched in the US in August 2016 and is linked to the Nasdaq US Healthcare Innovators Index.
Automation & Robotics
The iShares Automation & Robotics UCITS ETF (LON: RBOT) trades in US dollars and pound sterling (LON: RBTX), and tracks the iStoxx FactSet Automation & Robotics Index. The index tracks companies that are innovating across technologies, including manufacturing robotics and wearable technology. According to iShares, up to 45% of current global work activities could be automated using existing technology.
Naturally, the index is heavily concentrated around two sectors: technology (55.7%) and industrial goods & services (39.8%). The US (33.2%) and Japan (23.9%) represent the largest country exposures, while the UK (7.9%) and Germany (7.1%) also play significant roles. The index is up 12.9% YTD and 7.9% per annum over the past five years, according to backtest data.
Source: Stoxx.
The new ETF will likely be compared to the ROBO Global Robotics and Automation GO UCITS ETF (LON: ROBO), issued by ETF Securities, which recently trimmed its TER from 0.95% to 0.80% and switched to a physical replication method. This fund tracks the ROBO Global Robotics and Automation UCITS Index. and has $80m in AUM. A similar fund, the ROBO Global Robotics & Automation Index ETF (Nasdaq: ROBO), is available in the US.
Digitalisation
The iShares Digitalisation UCITS ETF (LSE: DGTL) trades in US dollars and pound sterling (LON: DGIT), and follows the iStoxx FactSet Digitalisation Index. The index tracks companies primarily focused on cybersecurity, electronic payment processes and financial technology. According to iShares, investments in financial technology have grown exponentially, rising from $1.8bn in 2010 to $19bn in 2015.
The largest sector exposures are technology (42.3%), industrial goods & services (27.6%), retail (15.3%) and media (4.5%), and the largest country exposures are the US (50.8%), Japan (9.9%), South Korea (5.6%) and the UK (5.3%). The index has returned 6.1% YTD and 18.1% per annum over the past five years (backtest data).
Source: Stoxx.
The fund is similar to the ETFS ISE Cyber Security GO UCITS ETF (LON: ISPY), issued by ETF Securities, which tracks the ISE Cyber Security UCITS Index. The fund has a TER of 0.75%.