Market factor

Is the FlexShares Morningstar US Market Factor Tilt ETF (TILT) a strong ETF right now?

A A smart beta listed index fund, the FlexShares Morningstar US Market Factor Tilt ETF (TILT) was launched on 09/16/2011 and offers broad exposure to the Style Box – All Cap Blend category of the market.

What are Smart Beta ETFs?

The ETF industry has long been awash with products based on market-cap-weighted indices designed to represent the entire market or a particular market segment.

A good option for investors who believe in market efficiency, market-cap-weighted indices offer an inexpensive, convenient, and transparent way to replicate market returns.

However, some investors believe in beating the market through exceptional stock selection and choose another type of fund that follows non-cap-weighted strategies: smart beta.

In attempting to choose stocks that have a better chance of risk-return performance, non-cap-weighted indices are based on certain fundamental characteristics, or a combination thereof.

This area offers many different investment choices, such as the simplest equal weighting, fundamental weighting, and volatility/momentum based weighting methodologies; however, not all of these strategies can yield superior results.

Fund Sponsor and Index

The fund is managed by Flexshares. TILT was able to amass assets of over $1.66 billion, making it one of the largest ETFs in the Style Box – All Cap Blend. Before fees and expenses, this particular fund seeks to match the performance of the Morningstar US Market Factor Tilt Index.

The Morningstar US Market Factor Tilt Index measures the performance of US equity markets with increased exposure to small cap and value stocks.

Cost and other expenses

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins ​​if all other fundamentals are the same.

The annual operating expense of this ETF is 0.25%, putting it on par with most peer products on the market.

The fund has a 12-month dividend yield of 1.21%.

Sector exposure and main holdings

Although ETFs provide diversified exposure, which minimizes single-stock risk, a thorough examination of a fund’s holdings is a valuable exercise. And most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has the largest allocation to the information technology sector – approximately 23.90% of the portfolio. Finance and health complete the top three.

Looking at individual holdings, Microsoft Corp Common Stock Usd 0.00000625 (MSFT) accounts for approximately 3.89% of total assets, followed by Apple Inc Common Stock Usd 0.00001 (AAPL) and Amazon.com Inc Common Stock USD 0.01 (AMZN).

The top 10 holdings represent approximately 18.48% of total assets under management.

Performance and risks

So far this year, TILT has lost around -4.02% and is up around 19.79% over the past year (as of 01/19/2022). During this last 52-week period, the fund traded between $146.68 and $184.34.

The ETF has a beta of 1.11 and a standard deviation of 23.53% for the three-year period, making it a medium-risk pick in the space. With approximately 2,260 holdings, it effectively diversifies company-specific risks.

Alternatives

FlexShares Morningstar US Market Factor Tilt ETF is a great option for investors looking to outperform the Style Box – All Cap Blend segment of the market. There are other ETFs in the space that investors might also consider.

The iShares Core S&P Total US Stock Market ETF (ITOT) tracks the S&P Total Market Index and the Vanguard Total Stock Market ETF (VTI) tracks the CRSP US Total Market Index. IShares Core S&P Total US Stock Market ETF has $44.85 billion in assets, Vanguard Total Stock Market ETF has $285.31 billion. ITOT has an expense ratio of 0.03% and VTI charges 0.03%.

Investors looking for cheaper, lower-risk options should consider traditional market-cap-weighted ETFs that aim to match the returns of the Style Box – All Cap Blend.

Conclusion

To learn more about this product and other ETFs, find products that fit your investment goals, and read articles about the latest developments in the ETF investment universe, please visit Zacks ETF Center.

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