News & Analysis

Massive $21 billion exodus from Dow Jones as iShares head to FTSE Russell

Andrew Saks, Tuesday, 29 June 2021

Benchmarks are an often forgotten key component of the electronic trading industry, that is until something changes.

The trading of currencies at Tier 1 level requires benchmarks which are set by a series of officials. A benchmark is an unmanaged group of securities which are considered as a 'benchmark' to measure a fund or stock's performance.

Most of the time, currency, commodity and stock markets are very comfortably operated on a constant basis without anyone, even professional traders in proprietary trading houses, considering benchmarks, however occasionally they change, and sometimes with very interesting or disruptive results.

The memory of the 2015 'black swan' event which was caused by the Swiss National Bank removing the peg on the EURCHF pair suddenly and without warning is something that very few banks, brokerages, traders or liquidity providers will forget. It caused unprecedented volatility which led to such high negative balances on trading accounts that some institutional trading businesses were unable to continue their business.

That was a very dramatic example, however even the preparation for expected benchmark changes is arduous, as can be exemplified by the end days of LIBOR, which banks are having to prepare for at the moment.

Today, another benchmark change is taking place, however this time it is being carried out not by authorities or data companies, but by the world's largest asset management company, Blackrock.

Blackrock, which initially began its business in 1988 as a risk management and fixed income institutional asset manager, is about to change the benchmarks of 10 iShares ETFs that together have about $20.7 billion in assets under management.

The funds will switch from Dow Jones benchmarks to indices provided by FTSE Russell, filings show, effective on or around September 20 this year.

This represents another huge switch toward the Russell Index, which is a London-based index that allows investors to track the performance of distinct market segments worldwide.

Last week, a whole raft of companies that entered US publicly listed markets through deals with blank-cheque SPAC companies in the past year became set to graduate into the Russell 3000 index, demonstrating that these new, opinion-driven stocks are also targeting this index.

On Friday last week, large psychedelic-inspired medicine company MindMed announced has been added to the FTSE Russell 3000 index which measures the performance of the largest 3,000 US companies.

With regard to Blackrock's iShares switch from Dow Jones to the FTSE Russell index, it transpires that the largest of the funds, which is the $7 billion iShares US Technology ETF, will change its underlying index and target benchmark to the Russell 1000 Technology RIC 22.5/45 Capped Index. Top constituents of this index, as of March 31, include Apple, Microsoft, Facebook, Alphabet and Nvidia.

The Dow Jones index is down 0.44% this morning, which is 150.57 points, and the FTSE Russell 3000 index is up 0.15%.

These may well be small movements, however this massive switch by Blackrock is perhaps indicative of how top investment management companies view the most prestigious indices.



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