Designed to provide broad exposure to the Style Box – All Cap Blend category of the market, the FlexShares Morningstar U.S. Market Factor Tilt ETF (TILT) is a smart beta exchange traded fund launched on 09/16/2011.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
The fund is managed by Flexshares. TILT has been able to amass assets over $1.78 billion, making it one of the larger ETFs in the Style Box – All Cap Blend. This particular fund seeks to match the performance of the Morningstar U.S. Market Factor Tilt Index before fees and expenses.
The Morningstar U.S. Market Factor Tilt Index measures the performance of U.S. equity markets with increased exposure toward small-capitalization and value stocks.
Cost & Other Expenses
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
Annual operating expenses for this ETF are 0.25%, making it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 1.10%.
Sector Exposure and Top Holdings
It is important to delve into an ETF’s holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
For TILT, it has heaviest allocation in the Information Technology sector –about 23.30% of the portfolio –while Financials and Consumer Discretionary round out the top three.
Taking into account individual holdings, Microsoft Corp Common Stock Usd 0.00000625 (MSFT) accounts for about 3.89% of the fund’s total assets, followed by Apple Inc Common Stock Usd 0.00001 (AAPL) and Amazon.com Inc Common Stock Usd 0.01 (AMZN).
TILT’s top 10 holdings account for about 18.48% of its total assets under management.
Performance and Risk
The ETF has added roughly 29.90% and it’s up approximately 35.70% so far this year and in the past one year (as of 11/17/2021), respectively. TILT has traded between $135.77 and $184.34 during this last 52-week period.
The fund has a beta of 1.12 and standard deviation of 23.90% for the trailing three-year period, which makes TILT a medium risk choice in this particular space. With about 2260 holdings, it effectively diversifies company-specific risk.
Alternatives
FlexShares Morningstar U.S. Market Factor Tilt ETF is a reasonable option for investors seeking to outperform the Style Box – All Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Core S&P Total U.S. Stock Market ETF (ITOT) tracks S&P Total Market Index and the Vanguard Total Stock Market ETF (VTI) tracks CRSP US Total Market Index. IShares Core S&P Total U.S. Stock Market ETF has $46.20 billion in assets, Vanguard Total Stock Market ETF has $290.03 billion. ITOT has an expense ratio of 0.03% and VTI charges 0.03%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box – All Cap Blend.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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FlexShares Morningstar U.S. Market Factor Tilt ETF (TILT): ETF Research Reports
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
Vanguard Total Stock Market ETF (VTI): ETF Research Reports
iShares Core S&P Total U.S. Stock Market ETF (ITOT): ETF Research Reports
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