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

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The iShares MSCI USA SmallCap Multifactor ETF (SMLF - Free Report) was launched on 04/28/2015, and is a smart beta exchange traded fund designed to offer broad exposure to the Style Box - Small Cap Blend category of the market.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

Managed by Blackrock, SMLF has amassed assets over $1.09 billion, making it one of the average sized 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

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

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 1.05%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

SMLF's heaviest allocation is in the Consumer Discretionary sector, which is about 19.40% of the portfolio. Its Healthcare and Information Technology round out the top three.

Taking into account individual holdings, Williams Sonoma Inc (WSM - Free Report) accounts for about 1.16% of the fund's total assets, followed by Deckers Outdoor Corp (DECK - Free Report) and Rh (RH - Free Report) .

The top 10 holdings account for about 9.69% of total assets under management.

Performance and Risk

The ETF has added about 24.72% so far this year and is up about 49.91% in the last one year (as of 10/29/2021). In the past 52-week period, it has traded between $37.94 and $56.70.

The fund has a beta of 1.13 and standard deviation of 27% for the trailing three-year period, which makes SMLF a high risk choice in this particular space. With about 497 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 - Free Report) tracks Russell 2000 Index and the iShares Core S&P SmallCap ETF (IJR - Free Report) tracks S&P SmallCap 600 Index. IShares Russell 2000 ETF has $70.74 billion in assets, iShares Core S&P SmallCap ETF has $71.59 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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