What Are ETFs With Smart Beta?

Market cap weighted indexes, a technique designed to mirror the market or a specific market sector, have long dominated the ETF market.

Market cap weighted indexes are a fantastic alternative for investors who believe in the efficiency of the market since they provide a cheap, practical, and transparent approach to replicate market returns.

But other investors believe that by picking the right stocks, they may outperform the market; this group is likely to invest in smart beta funds, which follow non-cap weighted methods.

In the same way as non-cap weighted methods choose stocks based on a combination of specific fundamental qualities, this type of index seeks to identify stocks with greater odds of risk-return performance.

Even while investors have a wide range of options in this area—from the most straightforward approaches, like equal-weighting, to the most complex, such fundamental and volatility/momentum based weighting—not all of them have been successful in producing high-caliber outcomes.

Fund Manager and Index

The fund is one of the bigger ETFs in the Style Box – Large Cap Value because of its $7.35 billion total assets. Blackrock is the manager of VLUE. Before fees and costs, this specific product aims to mimic the performance of the MSCI USA Enhanced Value Index.

The MSCI USA Enhanced Value Index is based on the MSCI USA Index, a conventional market capitalization-weighted parent index that covers big and midcap U.S. companies.

Other Expenses & Costs

Expense ratios are a critical consideration for ETF investors when evaluating a fund’s performance; over the long run, cheaper funds can potentially beat their more costly relatives assuming all other factors stay constant.

This ETF has yearly operating costs of 0.15%, making it one of the most affordable options available.

Exposure by Sector and Top Holdings

While ETFs provide diverse exposure that reduces the risk of investing in a single firm, a thorough examination of a fund’s holdings is a worthwhile exercise. Additionally, the majority of ETFs are extremely openly disclosed products that reveal their holdings every day.

About 25.30% of VLUE’s portfolio is allocated to the information technology sector, with healthcare and consumer discretionary rounding out the top three.