A smart beta exchange traded fund, the iShares MSCI USA Value Factor ETF (VLUE – Free Report) debuted on 04/16/2013, and offers broad exposure to the Style Box – Large Cap Value 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.
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.
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
Because the fund has amassed over $7.01 billion, this makes it one of the larger ETFs in the Style Box – Large Cap Value. VLUE is managed by Blackrock. This particular fund seeks to match the performance of the MSCI USA Enhanced Value Index before fees and expenses.
The MSCI USA Enhanced Value Index is based on a traditional market capitalization-weighted parent index, the MSCI USA Index which includes U.S. large and mid capitalization stocks.
Cost & Other Expenses
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
Operating expenses on an annual basis are 0.15% for this ETF, which makes it one of the least expensive 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 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.
For VLUE, it has heaviest allocation in the Information Technology sector –about 32.10% of the portfolio –while Financials and Consumer Discretionary round out the top three.
Taking into account individual holdings, Cisco Systems Inc (CSCO – Free Report) accounts for about 5.91% of the fund’s total assets, followed by At&t Inc (T – Free Report) and Intel Corporation Corp (INTC – Free Report) .
Its top 10 holdings account for approximately 33.43% of VLUE’s total assets under management.
Performance and Risk
The ETF has gained about 8.79% and was up about 8.51% so far this year and in the past one year (as of 12/27/2024), respectively. VLUE has traded between $98.17 and $115.38 during this last 52-week period.
The fund has a beta of 1.01 and standard deviation of 17.33% for the trailing three-year period, which makes VLUE a medium risk choice in this particular space. With about 153 holdings, it effectively diversifies company-specific risk.
Alternatives
IShares MSCI USA Value Factor ETF is an excellent option for investors seeking to outperform the Style Box – Large Cap Value segment of the market. There are other ETFs in the space which investors could consider as well.
Schwab U.S. Dividend Equity ETF (SCHD – Free Report) tracks Dow Jones U.S. Dividend 100 Index and the Vanguard Value ETF (VTV – Free Report) tracks CRSP U.S. Large Cap Value Index. Schwab U.S. Dividend Equity ETF has $65.32 billion in assets, Vanguard Value ETF has $128.10 billion. SCHD has an expense ratio of 0.06% 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.
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