iShares MSCI USA Value Factor ETF VLUE
- Morningstar Medalist Rating: Silver
- Morningstar Rating: ★★
- Morningstar Category: Large Value
Shares MSCI USA Value Factor ETF VLUE and iShares Edge MSCI USA Value Factor ETF’s deep-value tilt should be rewarded in the long term, but investors can expect a bumpy ride.
The fund targets the cheapest stocks in each sector from the MSCI USA Index based on forward price/book, forward price/earnings, and enterprise value/operating cash. Stock weightings are calculated using style scores and market capitalization, adjusted to maintain sector neutrality with the parent index at each semiannual rebalance.
Keeping sector weightings close to the broader US stock market means that they can diverge from the Russell 1000 Value category index, which may cause the fund to miss out when undervalued sectors rebound. Technology and financial sector allocations tend to be the largest differences, with the portfolio typically stowing more in technology stocks and less in financial stocks than the category benchmark.
The portfolio is more concentrated than the Russell 1000 Value Index. It typically holds one-fifth as many stocks and stashes around 15 percentage points more in its top 10 holdings. The portfolio’s targeted approach gives it a deeper-value tilt than the category benchmark, which includes more blend stocks. That can help the fund when value stocks do relatively well, but since the fund holds a smaller portion of the value side of the market, pronounced performance differences compared with its category tend to arise.
The fund’s concentrated, factor-driven approach leads to noticeable return swings, as individual holdings can disproportionately affect this fund. That creates opportunities when the cheapest stocks in each sector outperform, but it increases sensitivity to individual stocks, raising volatility in most environments. Sector neutrality helps offset these swings, but the fund’s relatively narrow scope means investors should expect year-to-year variability.
