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

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Making its debut on 04/28/2015, smart beta exchange traded fund iShares MSCI USA SmallCap Multifactor ETF (SMLF - Free Report) provides investors broad exposure to the Style Box - Small 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.

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.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

Because the fund has amassed over $1.02 billion, this makes it one of the average sized ETFs in the Style Box - Small Cap Blend. SMLF is managed by Blackrock. 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

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

With one of the cheaper products in the space, this ETF has annual operating expenses of 0.15%.

It has a 12-month trailing dividend yield of 1.18%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. 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 18.50% of the portfolio. Information Technology and Financials round out the top three.

Taking into account individual holdings, United Therapeutics Corp (UTHR - Free Report) accounts for about 1.35% of the fund's total assets, followed by Jabil Inc (JBL - Free Report) and Unum (UNM - Free Report) .

Its top 10 holdings account for approximately 9.44% of SMLF's total assets under management.

Performance and Risk

Year-to-date, the iShares MSCI USA SmallCap Multifactor ETF has added roughly 3.85% so far, and is down about -6.77% over the last 12 months (as of 01/11/2023). SMLF has traded between $44.10 and $56.56 in this past 52-week period.

The fund has a beta of 1.09 and standard deviation of 29.49% for the trailing three-year period, which makes SMLF a high risk choice in this particular space. With about 555 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 $52.78 billion in assets, iShares Core S&P SmallCap ETF has $67.25 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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