Industry Updates

BlackRock to fully replicate emerging market ETF following SPDJI index changes

The ETF will be able to hold full weightings of constituents following the changes

Lauren Gibbons


BlackRock is set to fully replicate its $617m emerging markets dividend ETF following changes to the index’s methodology.

After a consultation held by S&P Dow Jones Indices (SPDJI) last year, both dividend yield and market cap will be used to calculate constituent weights of the Dow Jones Emerging Markets Select Dividend index.

As a result, the iShares EM Dividend UCITS ETF (SEDY) will switch from non-replicating to fully replicating to better reflect the underlying benchmark.

The index currently offers exposure to 109 emerging market companies that have paid a dividend in each of the past three years, indicated annual dividends great than 0% and have reported no negative earnings per share in the last 12 months.

In a shareholder notice, BlackRock said: “The company’s investment manager has advised that should the fund continue to follow a non-replicating investment strategy, it could be at risk of being unable to hold the full weighting of constituents in the benchmark index as the index provider has enhanced the methodology to protect future growth and liquidity in the index.”

It added SEDY will fully replicate its index “on or around” 15 March, subject to the approval from the Central Bank of Ireland (CBI).

A spokesperson from BlackRock said: “The change of investment strategy reflects the new index methodology which more closely reflects market capitalisation of the underlying stocks.

“This allows for the fund to hold all securities in the benchmark weights following the enhancement.”

Under an optimised strategy, ETFs aim to mirror the index as closely as possible without tracking the entire index.

A full replication strategy means SEDY will track all the securities that make up the index.

BlackRock made similar changes to the iShares MSCI China A UCITS ETF last month, alongside several other ETFs last year to avoid tracking error.

These included the iShares MSCI USA ESG Screened UCITS ETF (SDUS), the iShares MSCI EM ESG Enhanced UCITS ETF (EDG2) and the iShares Digital Entertainment and Education UCITS ETF (PLAY).

State Street Global Advisors also made the switch on several ETFs in January, when the firm chose to fully replicate the underlying index of the SPDR MSCI EM Asia UCITS ETF (EMAD), the SPDR MSCI Emerging Markets UCITS ETF (EMRD) and the SPDR S&P Emerging Markets Dividend Aristocrats UCITS ETF (EDVD).

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