BlackRock is not afraid to go where few are going.
Investors have been having a long love affair with growth and mega cap stocks, while value and small cap names have been taking it on the chin. But BlackRock’s iShares launched this week a fund that offers exactly that: targeted exposure to small cap value stocks.
While not new territory for the issuer that offers several other value and small cap funds, the launch seems to be aimed at investors who are looking for an economy-reopening-type trade through an ETF that offers value in small caps, but has some risk safeguards built in, in the form of additional stock-selection screens and weighting.
The iShares Factors US Small Cap Value ETF (SVAL) tracks the Russell 2000 Focused Value Select Index, using three different value metrics to pick value names from the Russell 2000 universe. The fund also screens stocks for volatility, leverage, sentiment and liquidity, according to iShares. The resulting 250-holding portfolio is equally weighted, diluting single-stock risk.
Unsurprisingly, the portfolio of small cap value names is heavily tilted toward financials, which represent 42% of the fund’s sector allocation. Industrials also snag a big part of the portfolio, at 21%.
At launch, the top holdings included Watford Holdings (WTRE), Texas Capital Bancshares (TCBI), Triumph Bancorp (TBK) and Unifi (UFI).
(Use our stock finder tool to find an ETF’s allocation to a certain stock.)
“Designed to answer client needs, the launch of SVAL arrives amid the recent surge in demand for small cap and value stocks as investors reposition their portfolios for a reopening of the economy post-COVID-19,” said Bob Hum, U.S. head of factor ETFs for BlackRock. “Flows point to a gravitation toward pro-cyclical securities and value and small-size factors, which have historically outperformed during market recoveries.”
Competing With Itself
iShares is already behind a small cap value ETF tied to the Russell 2000 universe, the iShares Russell 2000 Value ETF (IWN), which has $8.2 billion in total assets, and costs 0.24% in expense ratio—slightly cheaper than SVAL’s 0.30% price tag.
IWN, however, looks for value within the small cap segment through a single metric—price-to-book. The simple screening methodology results in a much larger portfolio comprising more than 1,400 securities, almost 6x the size of the more-focused and possibly less volatile SVAL.
IWN, too, tilts toward financials, but to a smaller degree, with a 28% sector allocation, followed by 16% tied to industrials. It has attracted only about $25 million in net inflows since the March 23 market low.
Contact Cinthia Murphy at firstname.lastname@example.org