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

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Launched on 04/28/2015, the iShares MSCI USA SmallCap Multifactor ETF (SMLF - Free Report) is a smart beta exchange traded fund offering 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.

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.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

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 $986.39 million, this makes it one of the larger ETFs in the Style Box - Small Cap Blend. SMLF is managed by Blackrock. Before fees and expenses, this particular fund 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

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

Operating expenses on an annual basis are 0.30% for this ETF, which makes it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 1.16%.

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.

This ETF has heaviest allocation in the Healthcare sector - about 17.20% of the portfolio. Information Technology and Consumer Discretionary round out the top three.

When you look at individual holdings, Marathon Oil Corp (MRO - Free Report) accounts for about 1.81% of the fund's total assets, followed by Alcoa Corp (AA - Free Report) and Jones Lang Lasalle Inc (JLL - Free Report) .

Its top 10 holdings account for approximately 11.72% of SMLF's total assets under management.

Performance and Risk

Year-to-date, the iShares MSCI USA SmallCap Multifactor ETF has lost about -9.27% so far, and is down about -2.88% over the last 12 months (as of 05/04/2022). SMLF has traded between $50.87 and $59.93 in this past 52-week period.

The ETF has a beta of 1.07 and standard deviation of 27.51% for the trailing three-year period, making it a high risk choice in the space. With about 501 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 $55.06 billion in assets, iShares Core S&P SmallCap ETF has $67.22 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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