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Is FlexShares Morningstar U.S. Market Factor Tilt ETF (TILT) a Strong ETF Right Now?

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Making its debut on 09/16/2011, smart beta exchange traded fund FlexShares Morningstar U.S. Market Factor Tilt ETF (TILT - Free Report) provides investors broad exposure to the Style Box - All Cap Blend category of the market.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

TILT is managed by Flexshares, and this fund has amassed over $1.64 billion, which makes it one of the larger ETFs in the Style Box - All Cap Blend. Before fees and expenses, this particular fund seeks to match the performance of the Morningstar U.S. Market Factor Tilt Index.

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

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.

Operating expenses on an annual basis are 0.25% for TILT, making it on par with most peer products in the space.

TILT's 12-month trailing dividend yield is 1.31%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

TILT's heaviest allocation is in the Information Technology sector, which is about 22.70% of the portfolio. Its Financials and Consumer Discretionary round out the top three.

Looking at individual holdings, Microsoft Corp Common Stock Usd 0.00000625 (MSFT - Free Report) accounts for about 4.53% of total assets, followed by Apple Inc Common Stock Usd 0.00001 (AAPL - Free Report) and Nvidia Corp Common Stock Usd 0.001 (NVDA - Free Report) .

The top 10 holdings account for about 23.06% of total assets under management.

Performance and Risk

Year-to-date, the FlexShares Morningstar U.S. Market Factor Tilt ETF has added roughly 12.52% so far, and it's up approximately 23.30% over the last 12 months (as of 07/11/2024). TILT has traded between $154.26 and $204.21 in this past 52-week period.

The ETF has a beta of 1.08 and standard deviation of 17.71% for the trailing three-year period, making it a medium risk choice in the space. With about 1980 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 - Free Report) tracks S&P Total Market Index and the Vanguard Total Stock Market ETF (VTI - Free Report) tracks CRSP US Total Market Index. IShares Core S&P Total U.S. Stock Market ETF has $58.45 billion in assets, Vanguard Total Stock Market ETF has $419.08 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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