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BlackRock and LarrainVial partner to launch factor rotation fund

BlackRock and LarrainVial partner to launch factor rotation fund

BlackRock and LarrainVial Asset Management have partnered for the first time to launch a rotating factor ETF fund in Chile, Citywire Americas has learned.

The Fondo de Inversión LarrainVial Estados Unidos, a closed-end fund, aims to outperform the MSCI USA Index by investing in five US equities BlackRock ETFs, according to sources familiar with the fund.

Launched in April, the fund is registered in Chile and is run by LarrainVial. BlackRock acts as a sub-advisor, supervising the portfolio’s asset allocation. The fund is the Chilean market's first and only strategy made up entirely of rotating factors, according to sources.

Ked Hogan, head of investments for BlackRock's factor-based strategies, runs the fund along Michael Gates, who leads managed portfolio solutions in the Americas for the global fund house, and with Christian Bourke, LarrainVial Asset Management's trading manager.

Hogan also overseas the Luxembourg-domiciled absolute return, factor-based BlackRock Strategic Funds. 

BlackRock partnered with LarrainVial because the fund house doesn’t have an asset management arm in Chile but wanted to offer a ‘local and innovative’ solution for clients in Chile, said a source familiar with the situation.

Investors can buy the fund through LarrainVial or its distributors.

One of Chile's most prominent financial firms, LarrainVial's services include advisory and asset management for high net worth clients. The firm is in charge of $18.2 billion in total AUM, with its management arm running $4.3 billion. 

How it works

The strategy has been running since October 2016, but the LarrainVial Estados Unidos fund was launched in April.

Hogan, Gates and Bourke aim to combine ETFs based on five factors: momentum, value, size (with a slant toward smaller companies), minimum volatility and quality. These factors should have a lower correlation with the market so combining them should improve the portfolio’s risk-return profile, according to a fund factsheet seen by Citywire Americas.

In the search for incremental returns, the managers rotate these factors each month depending on what factor they deem attractive at the moment. At any point, each factor can make up from 5% to 35% of the fund.

As of March 31, the portfolio was made up of 35% momentum stocks, 30% value, 22% size, 8% minimum volatility and 5% quality.

Between January and March 31 of this year, the fund returned 6.4%, according to the factsheet. The benchmark its managers have assigned, the MSCI USA Index, rose about 6.2%.

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