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I Replaced IJS ETF With XSVM ETF: Good Timing?

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(This article was co-produced pinch Hoya Capital Real Estate)

Introduction

My finance solution for 2023 was to reappraisal each of our finance accounts (article link) and align their holdings pinch our semipermanent extremity for each account; immoderate of whom have allocations that are not decently aligned. A 2nd but captious portion of that effort is reviewing what we clasp to spot if it is still nan champion ETF for that marketplace segment, assuming that allocation itself still makes consciousness successful position of that account's mandate/purpose.

As portion of that strategy, I replaced nan iShares S&P Small-Cap 600 Value ETF (NYSEARCA:IJS) pinch nan Invesco S&P SmallCap Value pinch Momentum ETF (NYSEARCA:XSVM). The names intelligibly authorities nan accuracy quality betwixt nan ETFs. The 3, 5, and 10-years returns opportunity this is simply a bully semipermanent switch. As nan title asks, but was now nan correct time? As I will show later, IJS has been nan amended ETF recently. That doesn't mean nan move was wrong, but nan timing mightiness not person been nan best, but I should person done this deeper owed diligence earlier making nan trade!

iShares S&P Small-Cap 600 Value ETF review

ChartData by YCharts

Seeking Alpha describes this ETF as:

The iShares S&P Small-Cap 600 Value ETF managed by BlackRock Fund Advisors. The finance seeks to way nan finance results of nan S&P SmallCap 600 Value Index, composed of small-capitalization U.S. equities that grounds worth characteristics. IJS started successful 2000.

Source: seekingalpha.com IJS

IJS has $8.2b successful AUM pinch nan managers collecting 18bps successful fees. Investors presently received a TTM Yield of 1.3%.

Index review

I for illustration to commencement index-based ETFs pinch an overview of nan underlying index. S&P describes nan scale utilized as:

We measurement worth stocks utilizing 3 factors: nan ratios of book value, earnings, and income to price. S&P Style Indices disagreement nan complete marketplace capitalization of each genitor scale into maturation and worth indices. Constituents are drawn from nan S&P SmallCap 600®.

Source: spglobal.com Index

Features of that scale see nan following.

S&P SMALLCAP 600 VALUE Index

spglobal.com Index

The scale is rebalanced each 4th and uses a float-adjusted market-cap weighting process. The IJS ETF is 1 of 3 US-based ETFs based connected this index. As listed above, 3 factors are utilized to weight a banal arsenic Growth, Value, aliases combination. These are nan factors utilized for each strategy.

Growth vs Value

spglobal.com Index

The last breakdown aft ranking each banal connected nan supra factors is: 33% classified arsenic Growth, different 33% arsenic Value, and nan mediate 34% are weighted successful some indices arsenic such:

The mediate 34% of float marketplace capitalization consists of companies that person akin maturation and worth ranks. Their marketplace capitalization is distributed among nan Style indices based connected their distances from nan midpoint of nan Growth handbasket and nan midpoint of nan Value basket, arsenic elaborate below. The midpoint of each Style region is calculated arsenic nan mean of Value Scores and Growth Scores of companies successful nan Style basket.

Source: spglobal.com methodology.pdf

This results successful 187 stocks being successful some nan S&P 600 Value and nan Growth indices. Overall, IJS holds conscionable complete 500 of nan 600 stocks successful nan index, whereas nan Growth type only holds 370.

IJS holdings review

The assemblage allocations for this ETF are:

iShares S&P Small-Cap 600 Value ETF

ishares.com; compiled by Author

Being smaller companies, Technology stocks person little power successful this market-cap segment; pinch nan Real Estate assemblage each nan measurement up to nan 4th largest allocation.

Not counting nan rate held, nan adjacent 20 holdings relationship for conscionable nether 13% of nan portfolio.

Small-Cap ETF

ishares.com; compiled by Author

At 18%, nan bottommost half of nan portfolio still tin impact nan results achieved by nan IJS ETF. The ETF holds 4 contracts of nan RUSSELL 2000 EMINI CME MAR 23 futures truthful nan rate holdings has equity exposure.

IJS distribution review

Small-Cap Value stocks

seekingalpha.com IJS DVDs

The ETF has seen its payout turn 4-5% complete nan past 5- and 10-years, though astatine 1.3%, income is not a premier logic to ain this ETF.

Invesco S&P SmallCap Value pinch Momentum ETF review

ChartData by YCharts

Seeking Alpha describes this ETF as:

The Invesco S&P SmallCap Value pinch Momentum ETF invests successful worth and momentum stocks of small-cap companies. The money seeks to way nan capacity of nan S&P SmallCap 600 High Momentum Value Index, which is designed to measurement nan capacity of 120 stocks successful nan S&P SmallCap 600® Index that person comparatively precocious “value” and “momentum” scores. XSVM started successful 2005.

Source: seekingalpha.com XSVM

XSVM has $692m successful AUM pinch nan managers collecting 36bps successful fees; doubly what IJS ETF investors pay. The TTM Yield is 1.64%.

Index review

S&P provides this description:

The S&P SmallCap 600 High Momentum Value Index is designed nan measurement nan capacity of 120 stocks wrong nan S&P SmallCap 600 pinch charismatic valuations pinch a momentum overlay.

Source: spglobal.com Index

Looking astatine nan aforesaid scale characteristics, we see:

S&P SmallCap 600 High Momentum Value Index

spglobal.com Index

Using nan S&P SmallCap 660 Value constituents, nan stocks pinch nan highest Momentum people are selected. A buffer norm is utilized to minimize scale turnover. Here is really nan Momentum people is calculated.

index momentum calc

spglobal.com: Index Momentum PDF

XSVM holdings review

XSVM ticker

invesco.com; compiled by Author

Here, nan Top 4 sectors are complete 71% of nan portfolio, pinch nan adjacent assemblage pushing that allocation to complete 80%. Again, Technology stocks do not play a awesome domiciled successful this ETF.

XSVM ETF

invesco.com; compiled by Author

Holding galore less stocks, nan Top 20 relationship for 27% of nan portfolio, doubly nan attraction level of IJS. Offsetting that is nan bottommost half besides having doubly nan allocation of IJS astatine 36%. With nan holdings weighted by their Value score, nan distribution is tighter than IJS's, which is market-cap weighted.

XSVM distribution review

Invesco S&P SmallCap Value pinch Momentum ETF

seekingalpha.com XSVM DVDs

While payouts are quarterly, location were immoderate years wherever 1 costs was skipped.

Comparing ETFs

For parts of this process, I included nan iShares Core S&P Small-Cap ETF (IJR) to show really each strategy differs from nan non-factored ETF based connected nan related index. Based connected sectors, nan Top3 successful each 3 ETFs align, though immoderate weights disagree greatly.

jpmorgan.com

am.jpmorgan.com; compiled by Author

The sectors successful Green are ones wherever nan XSVM ETF overweights compared to nan IJS ETF; nan Yellow is wherever nan other occurs. Due to its momentum strategy, nan weights amongst nan XSVM sectors should move much than what IJS investors should experience.

This came arsenic a spot of a astonishment but information from 2 different sites showed nan aforesaid results; that being XSVM has a higher Value allocation than IJS does!

advisors.vanguard

advisors.vanguard.com: comparison tool

The ratio information does corroborate what nan Vanguard Style boxes indicate.

IJR ETF

personal.vanguard.com

The Top 10, while a small dated, show few, if any, stocks successful common.

IJR ticker

personal.vanguard.com

All of that translates into these results that investors person experienced.

PortfolioVisualizer

PortfolioVisualizer.com

Looking astatine nan yearly results shows 1 of nan 2 ETFs "winning" usually for respective years successful a row. If that is nan case, arsenic IJS is now performing better, than nan reply to my mobility seems to beryllium "you timed that move wrong"! If so, nan different Small-Cap costs we clasp should thief to offset nan insignificant weight-shift of this trade.

Portfolio strategy

When I picked nan XSVM ETF to switch 2 iShares Small-Cap ETFs, I deliberation I reviewed CAGR information connected complete a twelve costs I was acquainted with. These are immoderate and nan database shows 1 of nan information decisions investors request to make: "How overmuch history to consider?".

RZV ticker

PortfolioVisualizer.com

The caller capacity of nan Invesco S&P SmallCap 600 Pure Value ETF (RZV) has it connected apical now for 3-year and nether returns, but that wasn't nan lawsuit erstwhile I wrote this article: VIOV Vs. RZV: Getting Too Fancy In The Small-Cap Value Space past fall.

XSMO ticker

PortfolioVisualizer.com

Another logic down that Small-Cap ETF move was reducing my wide Small-Cap vulnerability arsenic nan allocation to XSVM was a fraction of what I held successful IJS and nan iShares S&P Small-Cap 600 Growth ETF (IJT), which I besides liquidated. The pursuing style floor plan shows we are overweight Small-Cap stocks successful general, and SCV stocks by a wide margin; compared to nan Index.

Fidelity.com

Fidelity.com

When I see my 401(k) assets, which Fidelity classifies arsenic "unknown", nan full shifts distant from Small-Cap. A ample portion of nan "equity" vulnerability comes from nan measurement Fidelity classifies BDCs arsenic being mostly Small-Cap equities, which I do not see them. Some of nan allocation is from "drift" wrong my Mid-Cap ETFs aliases Total-Market ETFs allocation to this market-cap. In total, Fidelity says I person 30 stocks, funds, BDCs, aliases REITs making up that Small-Cap allocation. It besides includes my Small-Cap world exposures and Micro-Cap funds. The constituent being, 1 needs to look "under nan hood" erstwhile examining allocation aliases different information provided by a 3rd party.

Final thoughts

In position of was nan timing best, for illustration deciding erstwhile to commencement Social Security, nan reply mightiness not beryllium known for years. A successful investor is okay pinch that and does not dwell connected nan past. Because of various laws astir finance accounts, we person a batch to support way of, but effort to simply that task by owning nan aforesaid costs successful aggregate accounts. For me, researching costs to screen for Seeking Alpha aliases reference articles others person written astir costs I ain aliases mightiness see has helped maine enactment abreast of what we own.

I ‘m proud to person asked to beryllium 1 of nan original Seeking Alpha Contributors to nan 11/21 motorboat of nan Hoya Capital Income Builder Market Place.

This is really HCIB sees its spot successful nan finance universe:

Whether your attraction is precocious output aliases dividend growth, we’ve sewage you covered pinch high-quality, actionable finance investigation and an all-encompassing suite of devices and models to thief build portfolios that fresh your unsocial finance objectives. Subscribers person complete entree to our finance investigation - including reports that are ne'er published elsewhere - crossed our areas of expertise including Equity REITs, Mortgage REITs, Homebuilders, ETFs, Closed-End-Funds, and Preferreds.

Editor: Naga



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