BlackRock Australia recreates US ETFs

by , 3rd May 2018

In a major corporate action, BlackRock Australia is overhauling its US ETFs while delisting several others.

BlackRock Australia is planning to dig up 14 of its US ETFs and replant them in Australia as locally domiciled funds.

The corporate action, the first of its kind by an Australian ETF issuer, will save Aussie investors the annoyance that usually comes with investing in US ETFs. In particular, it will save the rigmarole of completing US tax forms and enable investors to jump into dividend reinvestment plans, which are typically unavailable for US ETFs.

“Today’s changes will make investing in iShares… easier for Australian investors and advisors by reducing administration – investors will no longer require filing W-8BEN forms,” said Jon Howie, boss of iShares Australia, in a statement. (Pictured above).

BlackRock’s 14 US-based ETFs are currently structured as Chess Depositary Interests. While CDIs work well in Australia, they are not recognised by US regulators.

From a US tax perspective, Aussie end investors own the US ETF directly and as such are subject to US tax administration. The tax rate for Aussie investors is typically 30%, but this can be lowered to 15% by completing some forms (the dreaded W-8BEN).

Eliminating the need for completing US tax forms and enabling dividend reinvestment, BlackRock, with help from the ASX, has created locally-based feeder funds that invest purely in the named US ETFs. Once the changes are made, BlackRock’s investors will own units issued by the feeder fund, and the feeder fund will own the named US ETFs on trust.

BlackRock have been allowed to keep the same ISIN and tickers despite the restructuring.

Contacted for comment by ETF Stream, the ASX said the restructure was a while in the making and took legwork in the US as well as in Australia.

“It’s been a long time coming. You’re dealing with constituent documents that are based in the US. And the units were units of the US ETF,” said Andrew Weaver, the head of investment products at the ASX.

He added that it made sense that BlackRock was taking initiative among the major issuers as their products were most exposed to US regulators.

“Blackrock have explained that it was a real administrative burden to get everyone to fill out W-8 forms. It doesn’t affect other issuers in the same way. Vanguard have two US ETFs and State Street has one. BlackRock has 19, so it had the largest chunk.”

As part of the same action BlackRock is also killing off several of its international ETFs, including its Hong Kong and Singapore trackers. The delistings have come partly because there is too much overlap between ETFs – particularly the Asian trackers – BlackRock indicated.

But, crucially, they have also come because some ETFs have failed to attract enough assets. The iShares Singapore (ISG) and Hong Kong (IHK) ETFs, both scheduled to close, only attracted several million dollars in assets each – well below breakeven AUM. The low inflows came despite both countries having some of the highest forecast returns and best CAPE ratios.

Given BlackRock’s size, the restructurings will affect almost 20% of the Australian ETF market as measured by market capitalisation.

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BlackRock’s ETFs to be relisted in Australia:

  • IAA – iShares Asia 50 ETF
  • IEM – iShares MSCI Emerging Markets ETF
  • IEU – iShares Europe ETF
  • IJH – iShares S&P Mid-Cap ETF
  • IJP – iShares MSCI Japan ETF
  • IJR – iShares S&P Small-Cap ETF
  • IKO – iShares MSCI South Korea ETF
  • IOO – iShares Global 100 ETF
  • ITW – iShares MSCI Taiwan ETF
  • IVE – iShares MSCI EAFE ETF
  • IVV – iShares S&P 500 ETF
  • IXI – iShares Global Consumer Staples ETF
  • IXJ – iShares Global Healthcare ETF
  • IZZ – iShares China Large-Cap ETF

The iShares ETFs to be de-listed are:

  • IRU – iShares Russell 2000 ETF
  • ISG – iShares MSCI Singapore ETF
  • IXP – iShares Global Telecom ETF
  • IHK – iShares MSCI Hong Kong ETF
  • IBK – iShares MSCI BRIC ETF
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