BlackRock has launched a global equity small cap ETF in response to what it says is growing investor demand for exposure to developed market small-cap companies. The iShares MSCI World Small Cap UCITS ETF (WSML) allows investors take a building block approach to broad exposure but with a lower level of idiosyncratic risk than single stock investments. ETF Stream spoke to David Moroney, head of iShares EMEA product at BlackRock, to give us the lowdown.
Can you explain in detail this new product?
The iShares MSCI World Small Cap UCITS ETF delivers exposure to a diverse range of developed market small-cap companies. The underlying index of the fund, the MSCI World Small Cap Index, provides exposure to smaller companies across 23 developed market countries globally, accounting for approximately 14% of the free float-adjusted market capitalisation across each country.
ETFs and passive investing generally is more commonly associated with large caps - why is now a good time to be launching a small cap fund?
Improving economic indicators, supportive financial conditions and accelerating domestic growth bode well for smaller companies as they are able to add to employment and contribute to growth faster. Their higher domestic focus also means they have more exposure to domestic growth and less exposure to possible changes in global trade arrangements.
What are the potential downsides to investing in small caps via an ETF and how does BlackRock intend to mitigate these risks?
As with any type of investment, investors should undertake thorough due diligence when selecting a fund to ensure that it fits with their investment objective, while also aligning with their appetite for risk.
Does the total expense ratio of 0.35% show that small-cap ETFs are necessarily more expensive than large cap-based equity ETF funds?
ETFs may have lower costs than other types of investment funds, providing investors exposure to a diverse range of securities in one trade. Cost however is one of a number of determinants investors should consider when selecting an ETF. The iShares MSCI World Small Cap UCITS ETF has a total expense ratio of 0.35%, making it one of the most competitively priced in its category.
What is the index for the fund and why has it been chosen?
The iShares MSCI World Small Cap UCITS ETF tracks the MSCI World Small Cap Index, which provides exposure to over 4,000 small sized companies across 23 developed market countries globally. It represents 14% of the free float-adjusted market capitalisation across each country, while mid and large capitalisation companies make up 85%. The underlying index of the fund provides greater exposure to companies from the real estate, industrials and materials sectors, relative to the MSCI World Index.