The iShares U.S. Equity Factor ETF (LRGF) made its debut on 04/28/2015, and is a smart beta exchange traded fund that provides broad exposure to the Style Box - All Cap Value 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.
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.
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.
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
Because the fund has amassed over $1.02 billion, this makes it one of the largest ETFs in the Style Box - All Cap Value. LRGF is managed by Blackrock. This particular fund seeks to match the performance of the MSCI USA Diversified Multiple-Factor Index before fees and expenses.
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
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.
Operating expenses on an annual basis are 0.08% for LRGF, making it one of the least expensive products in the space.
It has a 12-month trailing dividend yield of 1.63%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, 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 29.50% of the portfolio. Its Healthcare and Consumer Discretionary round out the top three.
When you look at individual holdings, Apple Inc (AAPL) accounts for about 4.49% of the fund's total assets, followed by Microsoft Corp (MSFT) and Cisco Systems Inc (CSCO).
The top 10 holdings account for about 25.58% of total assets under management.
Performance and Risk
The ETF has lost about -18.44% and is down about -9.22% so far this year and in the past one year (as of 06/22/2022), respectively. LRGF has traded between $36.62 and $46.80 during this last 52-week period.
The ETF has a beta of 0.97 and standard deviation of 24.36% for the trailing three-year period, making it a medium risk choice in the space. With about 165 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) tracks ---------------------------------------- and the iShares Core S&P U.S. Value ETF (IUSV) tracks S&P 900 Value Index. Dimensional U.S. Targeted Value ETF has $6.27 billion in assets, iShares Core S&P U.S. Value ETF has $10.81 billion. DFAT has an expense ratio of 0.29% 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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iShares U.S. Equity Factor ETF (LRGF): ETF Research Reports
Apple Inc. (AAPL): Free Stock Analysis Report
Microsoft Corporation (MSFT): Free Stock Analysis Report
Cisco Systems, Inc. (CSCO): Free Stock Analysis Report
iShares Core S&P U.S. Value ETF (IUSV): ETF Research Reports
Dimensional U.S. Targeted Value ETF (DFAT): ETF Research Reports
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