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Is iShares US SmallCap Equity Fac (SMLF) a Strong ETF Right Now?

The iShares US SmallCap Equity Fac (SMLF) made its debut on 04/28/2015, and is a smart beta exchange traded fund that provides broad exposure to the Style Box - Small Cap Blend 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 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.

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.

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

The fund is sponsored by Blackrock. It has amassed assets over $833.17 million, making it one of the average sized ETFs in the Style Box - Small Cap Blend. SMLF, before fees and expenses, 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

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.

Annual operating expenses for this ETF are 0.15%, making it one of the cheaper products in the space.

It's 12-month trailing dividend yield comes in at 1.46%.

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.

SMLF's heaviest allocation is in the Industrials sector, which is about 17.80% of the portfolio. Its Financials and Information Technology round out the top three.

Taking into account individual holdings, Blk Csh Fnd Treasury Sl Agency (XTSLA) accounts for about 2.14% of the fund's total assets, followed by First Industrial Realty Trust Inc (FR) and Fair Isaac Corp (FICO).

Its top 10 holdings account for approximately 7.39% of SMLF's total assets under management.

Performance and Risk

The ETF has lost about -0.96% so far this year and is down about -0.85% in the last one year (as of 05/17/2023). In the past 52-week period, it has traded between $44.10 and $56.09.

The ETF has a beta of 1.10 and standard deviation of 23.15% for the trailing three-year period, making it a high risk choice in the space. With about 883 holdings, it effectively diversifies company-specific risk.

Alternatives

IShares US SmallCap Equity Fac 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 $46.92 billion in assets, iShares Core S&P Small-Cap ETF has $62.60 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 US SmallCap Equity Fac (SMLF): ETF Research Reports

First Industrial Realty Trust, Inc. (FR) : Free Stock Analysis Report

Fair Isaac Corporation (FICO) : 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