A Structural Analysis of the Smart Beta Fund IWF
IWF is an outperformer
The iShares Russell 1000 Growth ETF (IWF) seeks to replicate the performance result of the Russell 1000 Growth Index. Growth stocks provide substantial opportunities for capital appreciation to their investor. IWF has outperformed the market with an annual return of 6.6% in the market. The total annualized return of IWF since its inception on May 22, 2000, in the market is 2.2%. The top five holdings of IWF are Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Facebook (FB), and Alphabet (GOOGL).
Lower volatility
The chart above shows the market performance of a portfolio of 20% IWF and 80% SPY with the market S&P 500 itself. It can be observed that that adding IWF in the portfolio lowered the mean volatility of the market. Also, the year-to-date (or YTD) return of the combined portfolio comes out to be 4.2%. This is higher than the market SPY’s YTD return of 3.3%.
Conclusion
Growth and value style investing are the two basic types of investment approaches in the market. The former is riskier than the latter, whereas the latter is tough to identify in the market. Using either of the methods in the market raises the cost of investment. Using smart beta funds as a substitute in such a case could help in fundamentally following such a methodology but at a reduced cost. Investing in IWF might assist in using a growth style at a reduced cost, as its total expense ratio is 0.20%. This ratio is lower than many actively managed growth style funds.
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