Should the iShares Russell 1000 Value ETF be on your investment radar?

Launched on 22.05.2000, the iShares Russell 1000 Value ETF (NYSE:IWD) is a passively managed exchange-traded fund designed to provide broad exposure to the large-cap value segment of the U.S. equity market.

The fund is sponsored by Blackrock and has amassed over $55.66 billion in assets, making it the largest ETF attempting to compete with the large cap value segment of the U.S. stock market.

Why Large Cap Value

Companies in the large cap category typically have a market capitalization of over $10 billion. Large cap companies are considered a more stable option, have more predictable cash flows, and are less volatile than their mid and small cap counterparts.

Value stocks have below-average price-to-earnings and price-to-book ratios and therefore also have below-average revenue and earnings growth rates. Looking at their long-term performance, value stocks have outperformed growth stocks in almost all markets. However, they are likely to underperform growth stocks in strong bull markets.

Cost

Investors should also pay attention to an ETF’s expense ratio. Products with lower costs perform better than those with higher costs, assuming all other metrics remain the same.

The annual operating costs for this ETF are 0.19%, making it one of the cheaper products in this space.

The dividend yield for the last 12 months is 1.96%.

Sector engagement and top holdings

While ETFs offer diversified exposure that minimizes the risk of individual stocks, it’s still important to look at a fund’s holdings before investing. Fortunately, most ETFs are very transparent products that disclose their holdings daily.

The largest portion of this ETF is in the financial sector – about 23% of the portfolio. The top three are rounded out by industrials and healthcare.

Looking at individual investments, Berkshire Hathaway Inc Class B accounts for about 3.54% of total assets, followed by JPMorgan Chase & Co And ExxonMobil Corp (NYSE: XOM).

The top 10 holdings account for approximately 17.89% of total assets under management.

Performance and risk

IWD seeks to deliver performance before fees and expenses that of the Russell 1000 Value Index. The Russell 1000 Value Index measures the performance of the large-cap value sector of the U.S. equity market.

The ETF has gained about 6.18% so far this year and is up about 13.62% over the past year (as of July 9, 2024). Over the past 52-week period, it has traded between $143.69 and $179.11.

The ETF has a beta of 0.95 and a standard deviation of 15.18% for the trailing three-year period, making it a medium-risk choice in the space. With about 851 holdings, it effectively diversifies company-specific risk.

Alternatives

The IShares Russell 1000 Value ETF has a Zacks ETF Rank of 1 (Strong Buy) based on expected asset class return, expense ratio, momentum, among other factors. For this reason, the IWD is a great option for investors looking to gain exposure to the Style Box – Large Cap Value segment of the market. There are other ETFs in this space that investors could also consider.

The Schwab US Dividend Equity ETF (NYSE:SCHD) and the Vanguard Value ETF (NYSE:VTV) track a similar index. While the Schwab US Dividend Equity ETF has assets of $54.39 billion, the Vanguard Value ETF has assets of $115.94 billion. SCHD has an expense ratio of 0.06% and VTV charges 0.04%.

Bottom line

Passively managed ETFs are becoming increasingly popular among institutional and retail investors due to their low costs, transparency, flexibility and tax efficiency. They are excellent investment vehicles for long-term investors.

To read this article on Zacks.com, click here.