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Is IQ Chaikin U.S. Small Cap ETF (CSML) a Strong ETF Right Now?

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A smart beta exchange traded fund, the IQ Chaikin U.S. Small Cap ETF (CSML - Free Report) debuted on 05/16/2017, and offers broad exposure to the Style Box - Small Cap Blend category of the market.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

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.

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.

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 $202.71 million, this makes it one of the average sized ETFs in the Style Box - Small Cap Blend. CSML is managed by New York Life Investments. This particular fund, before fees and expenses, seeks to match the performance of the NASDAQ Chaikin Power US Small Cap Index.

The NASDAQ Chaikin Power US Small Cap Index is a rules-based, quantitative index designed to enhance the NASDAQ US 1500 Index, by selecting stocks with the highest Chaikin Power Gauge rating.

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 0.35% for this ETF, which makes it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 1.36%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

For CSML, it has heaviest allocation in the Financials sector --about 20.50% of the portfolio --while Industrials and Consumer Discretionary round out the top three.

When you look at individual holdings, Us Silica Holdings Inc (SLCA - Free Report) accounts for about 0.79% of the fund's total assets, followed by Sleep Number Corp (SNBR - Free Report) and Calix Inc (CALX - Free Report) .

Its top 10 holdings account for approximately 6.31% of CSML's total assets under management.

Performance and Risk

The ETF return is roughly 20.48% and was up about 48.16% so far this year and in the past one year (as of 08/19/2021), respectively. CSML has traded between $21.43 and $36.95 during this last 52-week period.

The fund has a beta of 1.37 and standard deviation of 31.01% for the trailing three-year period. With about 482 holdings, it effectively diversifies company-specific risk.


IQ Chaikin U.S. Small Cap ETF is an excellent option for investors seeking to outperform the Style Box - Small Cap Blend segment of the market. There are other ETFs in the space which investors could consider as well.

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 $64.50 billion in assets, iShares Core S&P SmallCap ETF has $66.94 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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