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Is iShares U.S. Equity Factor ETF (LRGF) a Strong ETF Right Now?

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Making its debut on 04/28/2015, smart beta exchange traded fund iShares U.S. Equity Factor ETF (LRGF - Free Report) provides investors broad exposure to the Style Box - All Cap Value category of the market.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

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.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

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.

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

The fund is managed by Blackrock. LRGF has been able to amass assets over $1.42 billion, making it one of the largest ETFs in the Style Box - All Cap Value. Before fees and expenses, LRGF seeks to match the performance of the MSCI USA Diversified Multiple-Factor Index.

The STOXX U.S. Equity Factor Index composes of U.S. large and mid-capitalization stocks that have favourable exposure to target style factors subject to constraints.

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.

Operating expenses on an annual basis are 0.08% for this ETF, which makes it one of the least expensive products in the space.

It's 12-month trailing dividend yield comes in at 1.61%.

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.

For LRGF, it has heaviest allocation in the Information Technology sector --about 31.10% of the portfolio --while Financials and Healthcare round out the top three.

Taking into account individual holdings, Apple Inc (AAPL - Free Report) accounts for about 6.78% of the fund's total assets, followed by Microsoft Corp (MSFT - Free Report) and Nvidia Corp (NVDA - Free Report) .

Its top 10 holdings account for approximately 27.44% of LRGF's total assets under management.

Performance and Risk

So far this year, LRGF has gained about 14.14%, and is up about 15.05% in the last one year (as of 11/09/2023). During this past 52-week period, the fund has traded between $38.44 and $46.09.

The ETF has a beta of 0.98 and standard deviation of 17.68% for the trailing three-year period, making it a medium risk choice in the space. With about 300 holdings, it effectively diversifies company-specific risk.

Alternatives

IShares U.S. Equity Factor ETF is an excellent option for investors seeking to outperform the Style Box - All Cap Value segment of the market. There are other ETFs in the space which investors could consider as well.

Dimensional U.S. Targeted Value ETF (DFAT - Free Report) tracks ---------------------------------------- and the iShares Core S&P U.S. Value ETF (IUSV - Free Report) tracks S&P 900 Value Index. Dimensional U.S. Targeted Value ETF has $8.03 billion in assets, iShares Core S&P U.S. Value ETF has $13.70 billion. DFAT has an expense ratio of 0.28% and IUSV charges 0.04%.

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 Value.

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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