Whether it’s stress testing or risk parity, plan sponsors are all about allocating capital based on what could go wrong instead of trying to beat a benchmark or outperform their peers. That means zeroing in on what the risks are and investing accordingly. Last week, I wrote about how low-volatility exchange-traded funds (ETFs) could just tap into plan sponsors’ need for a steady ride when it comes to investing in hot areas such as emerging markets, where the growth story is compelling but the potential for volatility is high enough to scare a few people off.

Now providers are setting their sights on the specific needs of pension funds—and they’re even going out to the pension world for help in putting together the products. Last Thursday, BlackRock announced that its iShares unit is launching three new factor-based equity ETFs that were actually designed in conjunction with the investment staff at the Arizona State Retirement System. These ETFs are built specifically for institutional use and will allow investors to gain exposure to a specific individual risk factor in their equity portfolio—value, size or momentum. The funds are as follows:

  • iShares MSCI USA Momentum Factor ETF, based on the MSCI USA Momentum Index;
  • iShares MSCI USA Size Factor ETF, based on the MSCI USA Risk Weighted Index; and
  • iShares MSCI USA Value Factor ETF, based on the MSCI USA Value Weighted Index.

What’s interesting about this set of products is the fact that they are specifically designed for pension use—and that pension staff was involved in their construction. I think we’ll be seeing a lot more of this kind of product innovation as plan sponsors continue to show their interest in the ETF approach and as ETF providers get better at understanding and meeting their needs.

Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

Benefits Canada Newsletter

For the latest industry news and opinions, sign up for our daily newsletter.

Add a comment

Have your say on this topic! Comments that are thought to be disrespectful or offensive may be removed by our Benefits Canada admins. Thanks!

* These fields are required.
Field required
Field required
Field required