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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?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

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.

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 sponsored by Blackrock. It has amassed assets over $1.77 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

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 0.08% for LRGF, making it one of the least expensive products in the space.

The fund has a 12-month trailing dividend yield of 1.35%.

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.

LRGF's heaviest allocation is in the Information Technology sector, which is about 32.10% of the portfolio. Its Consumer Discretionary and Financials round out the top three.

When you look at individual holdings, Microsoft Corp (MSFT - Free Report) accounts for about 6.58% of the fund's total assets, followed by Apple Inc (AAPL - Free Report) and Nvidia Corp (NVDA - Free Report) .

LRGF's top 10 holdings account for about 28.82% of its total assets under management.

Performance and Risk

Year-to-date, the iShares U.S. Equity Factor ETF return is roughly 11.10% so far, and was up about 35.83% over the last 12 months (as of 03/21/2024). LRGF has traded between $39.84 and $53.65 in this past 52-week period.

LRGF has a beta of 0.98 and standard deviation of 17.34% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 296 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 $9.75 billion in assets, iShares Core S&P U.S. Value ETF has $16.71 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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