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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 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.

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

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.

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.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

The fund is sponsored by Blackrock. It has amassed assets over $937.01 million, making it one of the larger ETFs in the Style Box - Small Cap Blend. This particular fund, before fees and expenses, 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%.

The fund has a 12-month trailing dividend yield of 1.32%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Healthcare sector - about 18.40% of the portfolio. Information Technology and Consumer Discretionary round out the top three.

Looking at individual holdings, Ovintiv Inc (OVV - Free Report) accounts for about 1.30% of total assets, followed by United Therapeutics Corp (UTHR - Free Report) and Blk Csh Fnd Treasury Sl Agency (XTSLA).

Its top 10 holdings account for approximately 9.74% of SMLF's total assets under management.

Performance and Risk

So far this year, SMLF has lost about -14.69%, and is down about -11.83% in the last one year (as of 09/06/2022). During this past 52-week period, the fund has traded between $46.10 and $59.93.

The ETF has a beta of 1.08 and standard deviation of 28.41% for the trailing three-year period, making it a high risk choice in the space. With about 508 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 $51.51 billion in assets, iShares Core S&P SmallCap ETF has $64.48 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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