Designed to provide broad exposure to the Style Box – Large Cap Value category of the market, the iShares Edge MSCI Multifactor USA ETF (LRGF) is a smart beta exchange traded fund launched on 04/28/2015.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
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.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.
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
Managed by Blackrock, LRGF has amassed assets over $822.89 million, making it one of the average sized ETFs in the Style Box – Large Cap Value. LRGF seeks to match the performance of the MSCI USA Diversified Multiple-Factor Index before fees and expenses.
The MSCI USA Diversified Multiple-Factor Index is composed of U.S. large and mid-capitalization stocks that have favourable exposure to target style factors subject to constraints.
Cost & Other Expenses
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.
With on par with most peer products in the space, this ETF has annual operating expenses of 0.20%.
LRGF’s 12-month trailing dividend yield is 1.97%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund’s holdings is a valuable exercise. And, 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 29.40% of the portfolio. Its Healthcare and Industrials round out the top three.
Taking into account individual holdings, Apple Inc (AAPL) accounts for about 3.52% of the fund’s total assets, followed by Intel Corporation Corp (INTC) and Microsoft Corp (MSFT).
LRGF’s top 10 holdings account for about 27.02% of its total assets under management.
Performance and Risk
The ETF has lost about -5.60% and is up about 1.06% so far this year and in the past one year (as of 07/28/2020), respectively. LRGF has traded between $22.90 and $35.80 during this last 52-week period.
LRGF has a beta of 1.01 and standard deviation of 22.92% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 148 holdings, it effectively diversifies company-specific risk.
Alternatives
IShares Edge MSCI Multifactor USA ETF is a reasonable option for investors seeking to outperform the Style Box – Large Cap Value segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Russell 1000 Value ETF (IWD) tracks Russell 1000 Value Index and the Vanguard Value ETF (VTV) tracks CRSP U.S. Large Cap Value Index. IShares Russell 1000 Value ETF has $35.24 billion in assets, Vanguard Value ETF has $49.32 billion. IWD has an expense ratio of 0.19% and VTV 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 – Large 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.
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
To read this article on Zacks.com click here.