Back to top

Image: Bigstock

Is FlexShares Morningstar U.S. Market Factor Tilt ETF (TILT) a Strong ETF Right Now?

Read MoreHide Full Article

The FlexShares Morningstar U.S. Market Factor Tilt ETF (TILT - Free Report) made its debut on 09/16/2011, and is a smart beta exchange traded fund that provides broad exposure to the Style Box - All Cap Blend category of the market.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

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.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

Because the fund has amassed over $1.30 billion, this makes it one of the larger ETFs in the Style Box - All Cap Blend. TILT is managed by Flexshares. This particular fund, before fees and expenses, seeks to match the performance of the Morningstar U.S. Market Factor Tilt Index.

The Morningstar U.S. Market Factor Tilt Index measures the performance of U.S. equity markets with increased exposure toward small-capitalization and value stocks.

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 0.25%.

The fund has a 12-month trailing dividend yield of 1.69%.

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 21.40% of the portfolio, the fund has heaviest allocation to the Information Technology sector; Financials and Healthcare round out the top three.

Taking into account individual holdings, Apple Inc Common Stock Usd 0.00001 (AAPL - Free Report) accounts for about 4.54% of the fund's total assets, followed by Microsoft Corp Common Stock Usd 0.00000625 (MSFT - Free Report) and Amazon.com Inc Common Stock Usd 0.01 (AMZN - Free Report) .

TILT's top 10 holdings account for about 15.35% of its total assets under management.

Performance and Risk

Year-to-date, the FlexShares Morningstar U.S. Market Factor Tilt ETF has lost about -22.89% so far, and is down about -17.96% over the last 12 months (as of 09/27/2022). TILT has traded between $139.93 and $184.34 in this past 52-week period.

The fund has a beta of 1.08 and standard deviation of 25.45% for the trailing three-year period, which makes TILT a medium risk choice in this particular space. With about 2282 holdings, it effectively diversifies company-specific risk.

Alternatives

FlexShares Morningstar U.S. Market Factor Tilt ETF is a reasonable option for investors seeking to outperform the Style Box - All Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Core S&P Total U.S. Stock Market ETF (ITOT - Free Report) tracks S&P Total Market Index and the Vanguard Total Stock Market ETF (VTI - Free Report) tracks CRSP US Total Market Index. IShares Core S&P Total U.S. Stock Market ETF has $39.11 billion in assets, Vanguard Total Stock Market ETF has $240.06 billion. ITOT has an expense ratio of 0.03% and VTI charges 0.03%.

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 - All 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.

Published in