iShares Core S&P Small-Cap ETF | IJR |
by Zachary Evens
IShares Core S&P Small-Cap ETF and iShares S&P SmallCap 600 ETF’s low fee, broad diversification, and profitability bias make them hard to beat. Both the U.S. and Ireland-domiciled strategies earn Morningstar Medalist Ratings of Silver. These funds track the S&P SmallCap 600 Index, which collects the smallest 600 stocks in the S&P 1500 composite index. Each constituent must meet initial market cap, liquidity, and profitability criteria to be eligible. The final portfolio is weighted by each stock’s float-adjusted market capitalization. Market-cap weighting is an efficient way to allocate the portfolio because it harnesses the market’s consensus opinion of each stock’s relative value. Faster-growing companies take up a larger share of the portfolio, while smaller companies that may be struggling take on a less-important role. This helps rein in turnover and associated trading costs. The S&P SmallCap 600 Index operates on the smaller end of the small-cap market. Its average holding size was just over $2 billion as of April 2023, which is smaller than most index competitors. Small-cap stocks tend to be more volatile than their larger peers. However, the fund’s parent index only includes profitable names, which removes the lowest-quality small-cap stocks and contains volatility. While the smaller names that constitute this portfolio can be volatile, the strategy’s broad reach ensures that one stock’s misfortune should not derail the entire portfolio. It stashes just 6% of assets in its top 10 holdings. That breadth helped the S&P SmallCap 600 Index return a sturdy 9.6% annually in the 10 years through April 2023. Each fund earned slightly less than that owing to its respective fee. |
Morningstar Pillars | |
Pessoas | Above Average |
Parent | Above Average |
Processo | Above Average |