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Is iShares U.S. Small-Cap Equity Factor ETF (SMLF) a Strong ETF Right Now?

Making its debut on 04/28/2015, smart beta exchange traded fund iShares U.S. Small-Cap Equity Factor ETF (SMLF) provides investors broad exposure to the Style Box - Small Cap Blend category of the market.

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.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

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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.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

The fund is managed by Blackrock, and has been able to amass over $1.08 billion, which makes it one of the average sized ETFs in the Style Box - Small Cap Blend. This particular fund seeks to match the performance of the MSCI USA Small Cap Diversified Multiple-Factor Index before fees and expenses.

The STOXX U.S. Small-Cap Equity Factor Index (USD) composed of U.S. small-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 0.15% for this ETF, which makes it on par with most peer products in the space.

It's 12-month trailing dividend yield comes in at 1.06%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

SMLF's heaviest allocation is in the Industrials sector, which is about 19.20% of the portfolio. Its Consumer Discretionary and Financials round out the top three.

Looking at individual holdings, Blk Csh Fnd Treasury Sl Agency (XTSLA) accounts for about 0.76% of total assets, followed by Emcor Group Inc (EME) and Deckers Outdoor Corp (DECK).

SMLF's top 10 holdings account for about 6.31% of its total assets under management.

Performance and Risk

The ETF has added roughly 6.25% and is up about 25.73% so far this year and in the past one year (as of 05/28/2024), respectively. SMLF has traded between $47.85 and $63.60 during this last 52-week period.

The fund has a beta of 1.11 and standard deviation of 21.11% for the trailing three-year period, which makes SMLF a high risk choice in this particular space. With about 869 holdings, it effectively diversifies company-specific risk.

Alternatives

IShares U.S. Small-Cap Equity Factor 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) tracks Russell 2000 Index and the iShares Core S&P Small-Cap ETF (IJR) tracks S&P SmallCap 600 Index. IShares Russell 2000 ETF has $60.50 billion in assets, iShares Core S&P Small-Cap ETF has $78.85 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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

iShares U.S. Small-Cap Equity Factor ETF (SMLF): ETF Research Reports

Deckers Outdoor Corporation (DECK) : Free Stock Analysis Report

EMCOR Group, Inc. (EME) : Free Stock Analysis Report

iShares Russell 2000 ETF (IWM): ETF Research Reports

iShares Core S&P Small-Cap ETF (IJR): ETF Research Reports

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Zacks Investment Research