ISHARES RUSSELL 2000 ETF (IWM)

Transcription

1 ISHARES RUSSELL 2000 ETF (IWM) $ USD Risk: Med Zacks ETF Rank 3 - Hold Fund Type Issuer Benchmark Index Small Cap ETFs BLACKROCK RUSSELL 2000 INDEX IWM Sector Weights Date of Inception 05/22/2000 AUM (million) $44, Number of holdings in the ETF 1984 Assets in top ten holdings 3.38% Expense Ratio 0.20% Dividend Yield 1.19% Price Chart Price Fundamentals of IWM Current Price $ Week High $ Week Low $ NAV (04/30/2018) $ Yr ETF Ret (05/11/2018) 17.00% Risk Statistics Beta (against S&P 500) 1.08 Standard Deviation 16.08% R % Zacks Opinion After lagging early in the year, small cap stocks have regained their momentum in the last several months and are clearly outperforming this year. This is especially true as tax reform hopes brought back the allure for these pint-sized stocks. If Congress approves the proposed corporate tax rate cut from 35% to 20%, small caps will the biggest beneficiaries relative to big companies. Additionally, theu.s. economy has been on a solid growth path buoyed by an impressive labor market, increase in wages, and higher consumer spending. Moreover, the prospect of another rate hike later this year is propelling small-cap stocks higher. While these stocks generally outperform when the American economy leads the way, these often experience high levels of volatility as huge gains and losses occur in a very short period of time. Key Points Largest and actively traded U.S. equity ETF Diversified exposure to small cap stocks Modest expense ratio and low trading cost Reasons to Buy Improving U.S. economy and Trump pro-growth policies Reasons to Sell Small caps are highly volatile than large and mid-cap counterparts The data on the front page and all the charts in the report represent market data as of 05/11/2018, while the report's text is as of 11/22/2017

2 Holdings Breakdown The product is well spread out across a number of components with each holding less than 0.35% of the assets. bluebird bio, Exact Sciences and MKS Instruments occupy the top three positions in the basket. Further, the product is well spread out across various sectors with financials, information technology, industrials, healthcare, and consumer discretionary being the top five. Performance Like many other funds in the space, IWM had a solid start to the year but exhibited greater volatility in the first and second quarters. However, the fund picked up to start the third quarter but was unable to sustain its strength in late July. The fund regained momentum in mid-august and was on an upward trajectory till the end of the third quarter. After that, it showed some weakness for one-and-half months and resumed its upward journey in recent weeks. In fact, the product has been hitting multiple highs lately. With this, the ETF has gained about 12% this year and has a decent dividend yield of 1.28% per annum. IWM Top 5 Holdings Weight % NEKTAR THERAPEUTICS 0.60% 2-Year Comparative BLUEBIRD BIO INC 0.40% GRUBHUB INC 0.39% ASPEN TECHNOLOGY INC 0.30% AVEXIS INC 0.29% Investment Objective The fund seeks to match the price and performance of the Russell 2000 Index, before fees and expenses. The index is a capitalization weighted 2000-stock subset of the Russell 3000 Index. The ETF holds 1989 stocks in the basket. Analysis This ETF is appropriate for investors seeking broad exposure to the U.S. market with a focus on small cap equities. Though not a low cost choice in the small cap space, the product does not involve any extra cost in the form of a bid/ask spread beyond the expense ratio of 0.20%. This is because it offers extreme liquidity, trading in volumes of around 23.5 million shares a day. Fundamentals IWM IJR VB Zacks Rank Price $ $81.13 $ AUM (million) $44, $39, $22, Expense Ratio 0.20% 0.07% 0.05% Dividend Yield 1.19% 1.15% 1.32% Assets in top % 5.15% 2.92% Beta YTD % Price Change 5.08% 5.94% 4.01% Description Launched in May 2000, ishares Russell 2000 Index Fund (IWM) is a passively managed fund designed to deliver the returns of the U.S. small cap segment. With total assets of about $44.5 billion, IWM is the largest and the most popular ETF in the small cap space.

3 Detailed Analysis The ETF provides a concentrated exposure to the U.S. small cap space. Since Trump elected a year-ago, the stock market has been on a spectacular rally. While gains are broad-based, small caps are clearly outperforming. Trump trade resurgence with renewed hopes of tax reform in recent months has turned the fate of the small cap stocks, which were lagging in the first half of the year as Trump s pro-growth policies stalled or stuck in a political gridlock. This is because small caps with a median effective tax rate of 31.9% are the biggest beneficiaries of Trump s tax cut plans. In comparison, the companies on the S&P 500 pay lower median tax rate of 28% while the tax rate for 30 mega-cap stocks on the Dow Jones Industrial Average is even low at 23.8%. Further, growth in the U.S. economy has been accelerating with GDP expanding 3% year over year in the third quarter following 3.1% growth in the second quarter. This represents the best back-to-back quarters of at least 3% growth since Unemployment dropped to the lowest level since December 2000 to 4.1%. Americans also have an optimistic view of the economy with confidence hitting the highest level in almost 17 years. Moreover, rising interest rates scenario indicates a stronger economy and in turn pushing small-cap stocks higher. Against such a backdrop, small-cap stocks, which do not have much exposure to the international market and generate most of their revenues from the domestic market, generally outperform on improving American economic health. Given favorable fundamentals, investors can easily tap the space with the help of ETFs. In this regard, IWM looks like an intriguing choice when compared to other unleveraged alternatives like IJR and VB. Let s take a look at the alternatives: Alternatives ishares Core S&P Small-Cap ETF (IJR) This product tracks the S&P SmallCap 600 Index, holding 601 stocks in its basket. It is widely diversified across securities as none of these holds more than 0.94% of the assets. The ETF is widely diversified across industrials, financials, information technology, consumer discretionary, and healthcare. It has about $34.8 billion in AUM and charges 7 bps in fees and expenses. Volume is solid, exchanging about 2.5 million shares a day on average. IJR has gained about 10.8% so far this year. Vanguard Small-Cap ETF (VB) This fund follows the CRSP US Small Cap Index and holds a broad basket of 1,417 securities in its portfolio. Like IWM, VB is also spread out with none of the securities accounting for more than 0.3% share. Here, financials makes up the top sector at 25.3% while industrials, technology, consumer services and healthcare round off the next four. The product has amassed $20.4 billion in its asset base while trading in good volume of about 531,000 shares a day on average. The ETF is one of the cheapest choices in the small cap space, charging 6 bps in annual fees from investors. The fund is up about 12.8% in the yearto-date timeframe. Our View 11/22/2017 Though the three funds are similar in nature and holdings, IWM looks more attractive as it is highly traded and the most popular choice in the small cap space. The ETF charges a modest initial fee but its low bid/ask spread makes it worth playing. Though IJR and VB trade in solid volume, it is much lower than IWM, compelling investors to pay extra in the form of a wide bid/ask spread, thereby increasing the cost of total trading for the two funds. Coming to holdings, while all three are well spread out across a number of securities, IWM has a concentration risk of 2.25%. This is well below 2.76% for IJR but is slightly above 2.17% for VB.

4 Glossary ACTIVE MANAGEMENT: ALPHA: AMERICAN DEPOSITORY RECEIPT: AUTHORIZED PARTICIPANTS: AVERAGE YIELD TO MATURITY: BASKET: BETA: BID/ASK SPREAD: CONTRARIAN: CREATION UNIT: DIVIDEND YIELD: EFFECTIVE DURATION: ENHANCED INDEXING: EXCHANGE TRADED FUND: EXCHANGE-TRADED NOTE: EXPENSE RATIO: FUND OF FUNDS: FUNDAMENTAL INDEXING: INDEX: INVERSE ETF: INVESTMENT STYLE: LEVERAGED ETF: A portfolio management strategy where the manager uses variety of skills and attributes (like top-down approach, bottom-up approach, value investing, growth investing or absolute returns strategy) in the portfolio so that the fundoutperforms the benchmark index. A measure of outperformance that can be calculated as the return of the fund minus the benchmark s return. A positivealpha indicates the fund has outperformed the benchmark index whereas negative alpha means underperformance. A negotiable non-us security that trades in the US financial market. An entity chosen by an ETF sponsor to undertake the responsibility of obtaining the underlyingassets needed to create an ETF. Authorized participants are typically large institutional organizations, such as market makers orspecialists. The expected rate of return on a fund s portfolio if it is held until the maturity while reinvestingall coupon payments at the bond yield. A portfolio of several stocks or securities that are selected for the inclusion in the fund with different weightings. A measure of risk compared to the market benchmark. A beta of less than 1 indicates that the fund is less volatile than themarket and vice versa. The difference between the highest price that a buyer is willing to pay (often called bid price) for theunderlying assets of securities of the fund and the lowest price that a seller is willing to accept (often called as offer or ask price) forit. An investment style that goes against prevailing market trends (i.e. against the thinking of many) by buying assetsthat are performing poorly and then selling when they perform well. A set of securities or underlying assets that can be created or redeemed by Authorized Participants for a certainnumber of ETF shares with the fund or trust. The creation units can vary in size ranging from 25,000 to 600,000 shares each. A financial ratio that measures how much a company pays out in dividends each year relative to its share price.it can be calculated as annual dividend per share divided by price per share. A measure of a fund s interest-rate sensitivity. The longer the duration, the more sensitive is the fund to the changes in interest rates. An investment idea that attempts to amplify the returns of an underlying asset or the fund with lowertracking error. Enhanced indexing combines elements of both passive and active management. The fund represents a basket of securities (that typically track an index), and is listed and tradeslike stocks on an exchange. ETFs can be traded throughout the day in amounts as little as one share. The note is a senior, unsecured, unsubordinated debt issued by a major bank. It has a maturity dateand is backed only by the credit of the issuer. The ETN however, do not actually hold any security, instead an issuing bankpromises to pay to investors the amount reflected by the index s performance (minus fees). An annual fee that the fund or ETF charge from the investors in order to provide exposure to the underlyingasset. A fund that invests in other funds instead of investing directly in stocks, bonds or other securities. A type of equity index in which stocks or securities are selected based on fundamental metrics such as revenue, dividend rates, earnings or book value. An imaginary portfolio of securities representing a particular market or a portion of it. An ETF that provides opposite (inverse) exposure in the underlying index though use of various financial andmoney market instruments over a specified period of time. This ETF is similar to holding a short position in order to take profit fromthe falling prices. A different style of investing such as growth, value and blend in a basket of asset. An ETF that uses various financial instruments to amplify the returns (up to 3 times) of the underlying index over a specified period of time.

5 LIQUIDITY: MARKET CAPITALIZATION: NET ASSET VALUE: PASSIVE MANAGEMENT: PORTFOLIO TURNOVER: R-SQUARED: SECTOR ROTATION: The degree to which an asset or security can be bought or sold in the market without affecting the asset s price. Liquidity is characterized by a high level of trading activity. Represents the aggregate value of the fund or underlying asset. Value of an ETF on per share basis and is calculated as total asset minus total liabilities divided by number of shares. A portfolio management strategy where the fund is the mirror image of the performance of the benchmark index. A percentage of underlying assets bought and sold in a given year. A measure of correlation with the market benchmark. An R-Squared of 100 indicates perfect correlation of the fund that of market while an R-Squared of 0 indicates no correlation. A strategy that involves moving from one sector to another by selling the underlying assets or securities ofa sector and purchasing securities or assets in another. SEC YIELD: A standard yield that the bond funds must pay to its shareholders based on the most recent 30- day period covered by the fund s filings with the SEC. SHORT ETF: STYLE BOX: TARGET DATE FUND: TRACKING ERROR: TREASURY INFLATION PROTECTED SECURITIES: VOLATILITY: VOLUME: YIELD CURVE: WEIGHTED MATURITY: An investment strategy that offers to take short position in the underlying index through various financial instruments. A visual representation of the fund, created by Morningstar, to determine risk-return structures of the portfolio. A style box is comprised of nine squares, or categories, that classify securities by size (small, mid and large cap) along the vertical axis and by value, growth and blend characteristics along the horizontal axis. A fund that invests exclusively in the assets or securities with a certain defined maturity. A measure of how closely a portfolio follows the benchmark index. It is calculated as the difference between the returns of fund portfolio and the benchmark index. The bonds that are issued by the U.S. Treasury to protect against inflation.these securities pay interest on an inflated-principal amount (principal rises with inflation) and when the securities mature, investors get either the inflation-adjusted principal or the original principal, whichever is greater. A measure of risk calculated by the annualized daily movement in the fund price. The lower the volatility of the fund the better it is. The number of shares traded in the market during a given period of time. A line that plots the interest rates of bonds having equal credit quality but differing maturity dates. The yield curveprovides an idea of future interest rate change and economic activity. It generally compares the three-month, two-year, five-yearand 30-year U.S. Treasury debt The remaining time to maturity of the underlying securities in a portfolio. A fund with a short averagematurity is more sensitive to current interest rate fluctuations than one with longer average maturity. 11/22/2017 Disclosure This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Please read the prospectus carefully. The data on the front page and all the charts in the report represent market data as of 05/11/2018, while the report's text is as of 11/22/2017