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Is iShares Edge MSCI Multifactor USA ETF (LRGF) a Strong ETF Right Now?

Zacks Equity Research

The iShares Edge MSCI Multifactor USA ETF (LRGF) was launched on 04/28/2015, and is a smart beta exchange traded fund designed to offer broad exposure to the Style Box - Large Cap Value category of the market.

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.

Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.

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.

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.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

LRGF is managed by Blackrock, and this fund has amassed over $754.26 million, which makes it one of the average sized ETFs in the Style Box - Large Cap Value. Before fees and expenses, LRGF seeks to match the performance of the MSCI USA Diversified Multiple-Factor Index.

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

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 0.20% for LRGF, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 2.20%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many 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 Consumer Discretionary round out the top three.

Taking into account individual holdings, Intel Corporation Corp (INTC) accounts for about 3.54% of the fund's total assets, followed by Walmart Inc (WMT) and Apple Inc (AAPL).

LRGF's top 10 holdings account for about 27.1% of its total assets under management.

Performance and Risk

Year-to-date, the iShares Edge MSCI Multifactor USA ETF has lost about -16.31% so far, and is down about -8% over the last 12 months (as of 05/13/2020). LRGF has traded between $22.90 and $35.80 in this past 52-week period.

The ETF has a beta of 1 and standard deviation of 22.17% for the trailing three-year period, making it a medium risk choice in the space. With about 162 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 $32.40 billion in assets, Vanguard Value ETF has $45.88 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.


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iShares Edge MSCI Multifactor USA ETF (LRGF): ETF Research Reports
 
Intel Corporation (INTC) : Free Stock Analysis Report
 
Apple Inc (AAPL) : Free Stock Analysis Report
 
Walmart Inc (WMT) : Free Stock Analysis Report
 
Vanguard Value ETF (VTV): ETF Research Reports
 
iShares Russell 1000 Value ETF (IWD): ETF Research Reports
 
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