The iShares International Small (ISCF) was launched on 04/28/2015, and is a smart beta exchange traded fund designed to offer broad exposure to the Broad Developed World ETFs category of the market.
What Are Smart Beta ETFs?
Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
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.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
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.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
ISCF is managed by Blackrock, and this fund has amassed over $547.02 million, which makes it one of the average sized ETFs in the Broad Developed World ETFs. ISCF seeks to match the performance of the MSCI World exUSA Small Cap Diversified Multiple-Factor Index before fees and expenses.
The MSCI World exUSA Small Cap Diversified Multiple-Factor Index is designed to select equity securities from MSCI World ex USA Small Cap Index that have high exposure to four investment style factors: value, quality, momentum and low size.
Cost & Other Expenses
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.
Annual operating expenses for ISCF are 0.23%, which makes it one of the cheaper products in the space.
The fund has a 12-month trailing dividend yield of 2.69%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
Looking at individual holdings, Investec Plc (INVP) accounts for about 1% of total assets, followed by Signify Nv (LIGHT) and K+s Ag (SDF).
Performance and Risk
Year-to-date, the iShares International Small has added about 1.31% so far, and is down about -5.33% over the last 12 months (as of 03/13/2023). ISCF has traded between $25.80 and $35.10 in this past 52-week period.
ISCF has a beta of 0.95 and standard deviation of 22.69% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 705 holdings, it effectively diversifies company-specific risk.
Alternatives
IShares International Small is a reasonable option for investors seeking to outperform the Broad Developed World ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
Vanguard Total International Stock ETF (VXUS) tracks FTSE Global All Cap ex US Index and the Vanguard FTSE Developed Markets ETF (VEA) tracks FTSE Developed All Cap ex US Index. Vanguard Total International Stock ETF has $52.49 billion in assets, Vanguard FTSE Developed Markets ETF has $104.98 billion. VXUS has an expense ratio of 0.07% and VEA charges 0.05%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Broad Developed World ETFs.
Bottom Line
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
