ETF Spotlight: MSCI USA Size Factor ETF (SIZE)

by on December 10, 2014 | Updated December 19, 2014

Choosing any core holding in a portfolio can sometimes be a difficult task given the wide array of options. While investors can choose anything from actively-managed funds to those with complex methodologies, sometimes the simplest strategies are the most compelling buys. In this piece, we highlight one from iShares’ lineup of “Factor” ETFs – the MSCI Size Factor ETF (SIZE), which aims to target a relatively attractive and safe corner of the popular large and mid-capitalization U.S. equity market [see also ETF Spotlight: MSCI USA Quality Factor ETF (QUAL)].

Inside SIZE’s Strategybullseye

iShares’ MSCI Size Factor ETF (SIZE) offers investors exposure to an index composed of both U.S. large and mid-capitalization stocks. But unlike other large-cap options, SIZE aims to focus on the “smaller” corner of the large- and mid-cap universe, as well as those securities that exhibit relatively lower levels of volatility.

The investment thesis behind this strategy is that these specific factors have historically driven a significant part of companies’ risk and return.

SIZE’s underlying index’s risk weighted methodology is based on each stock’s historical variance, estimated based on three years of weekly return data. 

Under the Hood of SIZE

SIZE’s portfolio consists of over 600 individual securities, making it one of the deepest equity funds on the market. Given its large portfolio, no one security is allocated more than 1.0% of the fund’s total assets. SIZE’s composition is most comparable to an equally-weighted fund, which typically does not allocate more than 1% to any one stock. 

The fund also features exposure to a number of sectors, including financials, consumer goods and services, industrials, utilities, health care and technology. Equities from information technology, materials, energy, and telecommunications are also included in the fund  [see 10 Questions About ETFs You've Been Too Afraid To Ask]

SIZE also diversifies its holdings across all equity styles, including value, growth, and blend stocks. Giant- and large-cap stocks account for roughly half of the fund’s holdings, while mid-cap equities make up the remainder. Some of SIZE’s holdings include:

  • PepsiCo (PEP)
  • McDonald’s Corp (MCD)
  • Clorox (CLX)
  • Colgate-Palmolive (CL)
  • General Mills (GIS)
  • Arch Capital Group (ACGL)

How to Use SIZE in a Portfolio

SIZE can be used as a core holding in any traditional buy-and-hold portfolio. The fund is best suited for those investors who want to maintain a tilt toward “smaller” but secure companies. This tilt allows for capital appreciation, especially during bull markets as smaller companies tend to outperform larger, more-established firms.

The compelling feature of this fund is that while it focuses on smaller capitalization companies, each of the underlying holdings are still considered to be either mid- or large-cap firms, which historically exhibit significantly lower volatility than small- and micro-cap stocks. In general, you can expect SIZE to have slightly lower risk than other broad-based U.S. equity funds, such as the S&P 500 ETF (SPY).

SIZE is also relatively inexpensive, with an expense ratio of 0.15%.

The Bottom Line

iShares MSCI Size Factor ETF (SIZE) is a compelling alternative to many broad-based equity products. Its “factor” approach to the mid- and large-cap universe of U.S. stocks, allows investors to get the best of both worlds: capital appreciation and lower volatility. 

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Disclosure: No positions at time of writing.