Is iShares MSCI USA SmallCap Multifactor ETF (SMLF) a Strong ETF Right Now?

A smart beta exchange traded fund, the iShares MSCI USA SmallCap Multifactor ETF (SMLF) debuted on 04/28/2015, and offers broad exposure to the Style Box - Small Cap Blend category of the market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

The fund is managed by Blackrock. SMLF has been able to amass assets over $902.02 million, making it one of the larger ETFs in the Style Box - Small Cap Blend. Before fees and expenses, this particular fund seeks to match the performance of the MSCI USA Small Cap Diversified Multiple-Factor Index.

The MSCI USA Small Cap Diversified Multiple-Factor Index is designed to select equity securities from MSCI USA Small Cap Index that have high exposure to four investment style factors: value, quality, momentum and low size.

Cost & Other Expenses

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.30%.

It's 12-month trailing dividend yield comes in at 1.38%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

Representing 18.40% of the portfolio, the fund has heaviest allocation to the Healthcare sector; Information Technology and Consumer Discretionary round out the top three.

Taking into account individual holdings, Marathon Oil Corp (MRO) accounts for about 1.81% of the fund's total assets, followed by Alcoa Corp (AA) and Jones Lang Lasalle Inc (JLL).

SMLF's top 10 holdings account for about 11.72% of its total assets under management.

Performance and Risk

So far this year, SMLF has lost about -18.08%, and is down about -13.30% in the last one year (as of 07/06/2022). During this past 52-week period, the fund has traded between $46.10 and $59.93.

The fund has a beta of 1.08 and standard deviation of 28.34% for the trailing three-year period, which makes SMLF a high risk choice in this particular space. With about 501 holdings, it effectively diversifies company-specific risk.

Alternatives

IShares MSCI USA SmallCap Multifactor ETF is a reasonable option for investors seeking to outperform the Style Box - Small Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Russell 2000 ETF (IWM) tracks Russell 2000 Index and the iShares Core S&P SmallCap ETF (IJR) tracks S&P SmallCap 600 Index. IShares Russell 2000 ETF has $52.39 billion in assets, iShares Core S&P SmallCap ETF has $61.39 billion. IWM has an expense ratio of 0.19% and IJR charges 0.06%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Small Cap Blend.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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iShares MSCI USA SmallCap Multifactor ETF (SMLF): ETF Research Reports
 
Marathon Oil Corporation (MRO) : Free Stock Analysis Report
 
Alcoa (AA) : Free Stock Analysis Report
 
Jones Lang LaSalle Incorporated (JLL) : Free Stock Analysis Report
 
iShares Russell 2000 ETF (IWM): ETF Research Reports
 
iShares Core S&P SmallCap ETF (IJR): ETF Research Reports
 
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