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BlackRock restructures US-domiciled ETFs

BlackRock restructures US-domiciled ETFs

Jessica Yun
— 1 minute read

BlackRock will convert its US-domiciled, ASX-listed iShares ETF range into Australian-domiciled vehicles, while also de-listing five ETFs.

Speaking to InvestorDaily, BlackRock Australia head of iShares Jon Howie said 14 of its US-domiciled iShares ETF funds would be restructured into Australian-domiciled iShares ETFs.

He said the reason for the conversion was because investors were finding it confusing to fill out the tax-related paperwork associated with investing in the US-domiciled funds.

While the current standard tax withholding rate was 30 per cent, Australia’s tax treaty with the US meant investors could fill out a tax form called W-8BEN and have the tax rate reduced down to 15 per cent, Mr Howie said.

However, the form was “not super easy to read” and needed to be filled out every three years, a process that investors had found “confusing” and “frustrating”.

“By changing the legal structure without changing the investment exposure, what we've done is completely removed that process for investors and for advisers,” Mr Howie told InvestorDaily, adding that administration would be “dramatically reduced”.

“The possibility that, say, an investor or adviser had forgotten to fill out a form and they therefore didn't receive the benefit of the reduced withholding tax rate, that will be a thing of the past; all investors will receive the lower tax rate because we will handle administration of those forms at the fund level.

“And … all of the Australian-domiciled funds that we currently run offer investors dividend reinvestment, whereas the funds when they are US-domiciled do not offer this service.”

The fourteen funds to be converted are: iShares Asia 50 ETF (IAA); iShares MSCI Emerging Markets ETF (IEM); iShares Europe ETF (IEU); iShares S&P Mid-Cap ETF (IJH); iShares MSCI Japan ETF (IJP); iShares S&P Small-Cap ETF (IJR); iShares MSCI South Korea ETF (IKO); iShares Global 100 ETF (IOO); iShares MSCI Taiwan ETF (ITW); iShares MSCI EAFE ETF (IVE); iShares S&P 500 ETF (IVV); iShares Global Consumer Staples ETF (IXI); iShares Global Healthcare ETF (IXJ); and iShares China Large-Cap ETF (IZZ).

All together, these funds have over $7 billion assets under management, Mr Howie said.

The conversion will not have any impact on investment exposures or management fees.

Mr Howie said there was “very little for investors to do” from this point forward but noted that plans to convert the ETFs needed the approval of a minimum of two iShares investors per fund through a “very very simple process” of voting online.

“But other than that ... BlackRock is meeting the costs of this change. The costs are not insignificant, but we believe it's in the best interest of investors so there will be no costs borne by the fund or by investors

“So effectively, it will happen automatically as long as we get enough investors to vote in support.”

BlackRock is also de-listing five ETFS, the flows of which Mr Howie said had been “relatively muted”.

The funds to be de-listed are: iShares Russell 2000 ETF (IRU); iShares MSCI Singapore ETF (ISG); iShares Global Telecom ETF (IXP); iShares MSCI Hong Kong ETF (IHK); and iShares MSCI BRIC ETF (IBK).

He also said that the portfolios of some ETFs shared some “crossover” with other funds, such as the exposure to US small caps in both the iShares Russell 200 ETF and the iShares S&P Small Cap ETF.

“Now that's just one example, but really those two funds are giving investors very similar exposures. And so we didn't think we needed to have two of those exposures on the market,” Mr Howie said.

“And to some extent, by removing one of them, we possibly reduce any confusion investors might have had about which one to use.”

Other funds, such as the iShares MSCI Singapore ETF, had simply “not resonated with investors”, who had other options if they wanted exposure to Asian companies.

 

BlackRock restructures US-domiciled ETFs
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