Designed to provide broad exposure to the Style Box - All Cap Value category of the market, the iShares U.S. Equity Factor ETF (LRGF) is a smart beta exchange traded fund launched on 04/28/2015.
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.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
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
The fund is sponsored by Blackrock. It has amassed assets over $2.15 billion, making it one of the largest ETFs in the Style Box - All Cap Value. LRGF, before fees and expenses, 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 this ETF, which makes it one of the least expensive products in the space.
It has a 12-month trailing dividend yield of 1.25%.
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.
Representing 33% of the portfolio, the fund has heaviest allocation to the Information Technology sector; Consumer Discretionary and Healthcare round out the top three.
When you look at individual holdings, Apple Inc (AAPL) accounts for about 6.57% of the fund's total assets, followed by Microsoft Corp (MSFT) and Nvidia Corp (NVDA).
Its top 10 holdings account for approximately 30.81% of LRGF's total assets under management.
Performance and Risk
Year-to-date, the iShares U.S. Equity Factor ETF has added roughly 22.11% so far, and was up about 35.37% over the last 12 months (as of 09/26/2024). LRGF has traded between $41.50 and $58.74 in this past 52-week period.
The ETF has a beta of 0.98 and standard deviation of 17.53% for the trailing three-year period, making it a medium risk choice in the space. With about 284 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.
Capital Group Dividend Value ETF (CGDV) tracks ---------------------------------------- and the iShares Core S&P U.S. Value ETF (IUSV) tracks S&P 900 Value Index. Capital Group Dividend Value ETF has $10.90 billion in assets, iShares Core S&P U.S. Value ETF has $19.09 billion. CGDV has an expense ratio of 0.33% 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 Core S&P U.S. Value ETF (IUSV): ETF Research Reports
Capital Group Dividend Value ETF (CGDV): ETF Research Reports
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