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Is FlexShares Morningstar U.S. Market Factor Tilt ETF (TILT) a Strong ETF Right Now?

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Designed to provide broad exposure to the Style Box - All Cap Blend category of the market, the FlexShares Morningstar U.S. Market Factor Tilt ETF (TILT - Free Report) is a smart beta exchange traded fund launched on 09/16/2011.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide 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.

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.

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

The fund is managed by Flexshares, and has been able to amass over $1.42 billion, which makes it one of the larger ETFs in the Style Box - All Cap Blend. Before fees and expenses, TILT seeks to match the performance of the Morningstar U.S. Market Factor Tilt Index.

The Morningstar U.S. Market Factor Tilt Index measures the performance of U.S. equity markets with increased exposure toward small-capitalization and value stocks.

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.

Annual operating expenses for TILT are 0.25%, which makes it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 1.53%.

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.

Representing 21.10% of the portfolio, the fund has heaviest allocation to the Information Technology sector; Financials and Healthcare round out the top three.

Looking at individual holdings, Apple Inc Common Stock Usd 0.00001 (AAPL - Free Report) accounts for about 3.74% of total assets, followed by Microsoft Corp Common Stock Usd 0.00000625 (MSFT - Free Report) and Amazon.com Inc Common Stock Usd 0.01 (AMZN - Free Report) .

The top 10 holdings account for about 9.85% of total assets under management.

Performance and Risk

Year-to-date, the FlexShares Morningstar U.S. Market Factor Tilt ETF has added roughly 5.11% so far, and is down about -9.93% over the last 12 months (as of 04/05/2023). TILT has traded between $138.28 and $172.19 in this past 52-week period.

TILT has a beta of 1.08 and standard deviation of 21.08% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 2134 holdings, it effectively diversifies company-specific risk.

Alternatives

FlexShares Morningstar U.S. Market Factor Tilt ETF is a reasonable option for investors seeking to outperform the Style Box - All Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Core S&P Total U.S. Stock Market ETF (ITOT - Free Report) tracks S&P Total Market Index and the Vanguard Total Stock Market ETF (VTI - Free Report) tracks CRSP US Total Market Index. IShares Core S&P Total U.S. Stock Market ETF has $40.99 billion in assets, Vanguard Total Stock Market ETF has $280.58 billion. ITOT has an expense ratio of 0.03% and VTI charges 0.03%.

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 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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