In recent weeks, the billion-dollar club has welcomed a curious new member: the iShares Edge MSCI U.S.A. Size Factor ETF (SIZE).
Since Nov. 14, SIZE has brought in $1.03 billion in new net investment assets, including a massive $658 million intake on Nov. 15:
Source: ETF.com; data as of Dec. 5, 2019
We noted this big inflow at the time. Since then, SIZE has continued to take in money; as of Dec. 5, the fund's assets stood at $1.46 billion, making it by far the largest of the three inverse market cap ETFs on the market.
SIZE's competitors, the Reverse Cap Weighted U.S. Large Cap ETF (RVRS) and the Invesco Russell 1000 Size Factor ETF (OSIZ), have $9.6 million and $7.3 million in assets under management, respectively.
Inverse-cap-weighted ETFs lean into the size factor, prioritizing high-risk, high-performance small caps to help juice the returns of broad-based equity indexes. But for years, the strategy has struggled to find footing with investors. However, SIZE's recent inflows suggest that maybe investors' minds have started to change.
Multiple Angles On Inverse
Of the three, RVRS is probably the truest to the spirit of inverse-cap weighting, or at least what investors might expect when they hear the term "inverse-cap weighting": The ETF inversely weights equities in the S&P 500 Index, giving the smallest stocks the largest weights.
SIZE takes a much different approach, weighting its holdings by the inverse of the natural logarithm of their market capitalizations. Natural logarithms—or ln(x)—are a common algebraic tool; a number's natural logarithm is the exponential power to which the irrational number, e, would have to be raised in order to equal that number.
(OSIZ takes a similar tack as SIZE, but uses the logarithm of market cap, instead of the natural logarithm.)