The iShares Enhanced International Large-Cap ETF (IEIL) and the iShares Enhanced International Small-Cap ETF (IEIS) are the international cousins of the iShares Enhanced US Large-Cap ETF and the iShares Enhanced US Small-Cap ETF, respectively.
The two funds seek to provide long-term risk-adjusted returns relative to broad international large-cap stocks and come at a time when global markets are looking nervous due to slowing growth in the US and China and the Federal Reserve’s dialing back of its monetary stimulus.
IEIL, the large-cap version, employs a research-based investment methodology that factors in characteristics like stable earnings, lower relative valuations and a relatively smaller market capitalization. Other factors that are considered include (but not limited to) momentum, leverage and price-to-book ratio.
Factors are a set of investment characteristics that explain risk and return behavior of an asset and have gained prominence in recent times as investors are increasingly looking to outperform the market over the long-term through capital appreciation. Factor investing is well-documented and differentiated approach to traditional market-cap weighted investing.
The fund overweights factors with higher average returns and accounts for correlation between factors while trying to minimize risk. The universe of international large capitalization securities primarily contains equities from financial, industrials, energy, consumer discretionary and telecommunications companies; and includes stocks of such famous names as Rolls Royce, BMW, Zurich Insurance, Deutsche Telekom, Swiss Re and Total SA. The portfolio is well diversified with more than 170 holdings.
IEIL has an annual expense ratio of 0.35 percent.
IEIS, the small-cap international fund, also employs a factor-based investment approach to combine quality, value, beta (a stock’s sensitivity to broad market movements) and size, while using additional screens to identify smaller-sized and undervalued companies. On the launch day, the fund had 390 holdings in its portfolio.
IEIS is more expensive and charges 0.49 percent in annual fees.
Disclosure: No holdings