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Is Nuveen ESG SmallCap ETF (NUSC) a Strong ETF Right Now?

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The Nuveen ESG SmallCap ETF (NUSC - Free Report) was launched on 12/13/2016, and is a smart beta exchange traded fund designed to offer broad exposure to the Style Box - Small Cap Growth 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.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.

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.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

Because the fund has amassed over $967.85 million, this makes it one of the larger ETFs in the Style Box - Small Cap Growth. NUSC is managed by Nuveen. Before fees and expenses, NUSC seeks to match the performance of the TIAA ESG Small-Cap Index.

The TIAA ESG USA Small-Cap Index comprises of equity securities issued by small-capitalization companies listed on US exchanges.

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 0.30% for NUSC, making it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 8.55%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

For NUSC, it has heaviest allocation in the Industrials sector --about 18.60% of the portfolio --while Consumer Discretionary and Financials round out the top three.

Taking into account individual holdings, First Horizon Corporation (FHN - Free Report) accounts for about 1.15% of the fund's total assets, followed by Darling Ingredients Inc (DAR - Free Report) and Concentrix Corp (CNXC - Free Report) .

The top 10 holdings account for about 8.49% of total assets under management.

Performance and Risk

The ETF has lost about -18.32% so far this year and is down about -13.99% in the last one year (as of 05/19/2022). In the past 52-week period, it has traded between $33.73 and $47.48.

NUSC has a beta of 1.13 and standard deviation of 28.68% for the trailing three-year period. With about 590 holdings, it effectively diversifies company-specific risk.

Alternatives

Nuveen ESG SmallCap ETF is a reasonable option for investors seeking to outperform the Style Box - Small Cap Growth segment of the market. However, there are other ETFs in the space which investors could consider.

IShares ESG Aware MSCI EAFE ETF (ESGD - Free Report) tracks MSCI EAFE ESG Focus Index and the iShares ESG Aware MSCI USA ETF (ESGU - Free Report) tracks MSCI USA ESG Focus Index. IShares ESG Aware MSCI EAFE ETF has $6.85 billion in assets, iShares ESG Aware MSCI USA ETF has $22.45 billion. ESGD has an expense ratio of 0.20% and ESGU charges 0.15%.

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 Growth.

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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