iShares adopts STOXX indices to underlie EMEA multifactor ETFs with exclusionary screens 

BlackRock has adopted STOXX indices to underlie three iShares multifactor ETFs that also integrate sustainability principles.

The ETFs and respective indices are:

The launch expands a successful multifactor collaboration between STOXX and BlackRock that now includes ten iShares ETFs with total assets under management of USD 6.4 billion.^[1]

The multifactor approach

The STOXX Equity Factor Screened indices seek to capture the fundamental drivers of equity performance through five signals: Quality, Value, Momentum, Low Size and Low Volatility. The indices offer investors a unique methodology to target long-term potential outperformance and diversified exposure while controlling for systematic risk. The indices also implement baseline exclusions^[2] and reduce the greenhouse gas (GHG) intensity relative to the parent benchmark. 

The indices’ methodology follows an optimization process that maximizes the allocation to a multifactor alpha signal, while satisfying a set of constraints to avoid unintended and uncompensated bets, and control for active risk. The multifactor alpha signal is created by combining the following factors and weights: 36% Quality, 27% Momentum, 27% Value, 5% Low Volatility and 5% Low Size.

Figure 1 displays the historical active exposures to the target factors for the STOXX Developed Europe Equity Factor Screened index.

Figure 1: Targeted factors — active exposure over time

_{Source: STOXX, daily frequency, March 20, 2000 – September 9, 2024. Exposure is the index’s weighted average score for each metric minus that of the parent index, and represents the number of standard deviations that score falls from the universe average. Factor exposures are calculated using a custom Axioma risk model.}

The construction methodology incorporates constraints around sector, countries, individual companies and single-factor exposures, and controls for turnover, beta and tracking error relative to the broad market.

Factors through a market cycle

Because of its full-market-cycle performance potential, many investors tend to leverage a multifactor strategy to mitigate long periods of underperformance from a given individual factor and enhance risk-adjusted returns. Controlling how much a multifactor index can be tilted toward any single factor creates diversified and consistent factor profiles and prevents the index from loading too much (or not enough) on one individual factor. 

Ongoing collaboration

Technological advancements have in recent years allowed for improved factor portfolios that accurately hone in on the potential for long-term enhanced returns without inherent pitfalls such as unwanted biases, sustained periods of underperformance or high costs. 

BlackRock in 2022 enhanced its multifactor suite in the US, adopting STOXX indices for the iShares U.S. Equity Factor ETF (LRGF) — which tracks the STOXX® U.S. Equity Factor index — and iShares International Equity Factor ETF (INTF) — which mirrors the STOXX® International Equity Factor index. In March of 2023, the asset manager expanded the coverage of STOXX factor strategies in adopting the following four indices to underlie respective iShares ETFs: STOXX® Global Equity Factor, STOXX® Emerging Markets Equity Factor, STOXX® U.S. Small-Cap Equity Factor and STOXX® International Small-Cap Equity Factor.

For more on the rationale and benefits of multifactor investing, read an article from 2022 on this blog.

^[1] Data through January 14, 2025.
^[2] Exclusionary screens include Global Standards Screening, Controversy Rating, Tobacco, Thermal Coal, Unconventional Oil & Gas and Weapons.