Should iShares Morningstar SmallCap Growth ETF (ISCG) Be on Your Investing Radar?

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Launched on 06/28/2004, the iShares Morningstar SmallCap Growth ETF (ISCG) is a passively managed exchange traded fund designed to provide a broad exposure to the Small Cap Growth segment of the US equity market.

– Zacks

The fund is sponsored by Blackrock. It has amassed assets over $444.90 million, making it one of the average sized ETFs attempting to match the Small Cap Growth segment of the US equity market.

Why Small Cap Growth

There’s a lot of potential to investing in small cap companies, but with market capitalization below $2 billion, that high potential comes with even higher risk.

While growth stocks do boast higher than average sales and earnings growth rates, and they are expected to grow faster than the wider market, investors should note these kinds of stocks have higher valuations. Also, growth stocks are a type of equity that carries more risk compared to others. Compared to value stocks, growth stocks are a safer bet in a strong bull market, but don’t perform as strongly in almost all other financial environments.

Costs

Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.06%, making it the least expensive products in the space.

It has a 12-month trailing dividend yield of 0.62%.

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.

This ETF has heaviest allocation to the Healthcare sector–about 22.90% of the portfolio. Information Technology and Industrials round out the top three.

Looking at individual holdings, Zoominfo Technologies Inc Class A (ZI) accounts for about 0.61% of total assets, followed by Asana Inc Class A (ASAN) and Crocs Inc (CROX).

The top 10 holdings account for about 4.75% of total assets under management.

Performance and Risk

ISCG seeks to match the performance of the MORNINGSTAR US SML CP BRD GRWTH EXTD ID before fees and expenses. The Morningstar US Small Cap Broad Growth Extended Index comprises of small-capitalization U.S. equities that exhibit growth characteristics.

The ETF has lost about -1.11% so far this year and is down about -4.42% in the last one year (as of 12/24/2021). In the past 52-week period, it has traded between $47.38 and $58.15.

The ETF has a beta of 1.07 and standard deviation of 27.33% for the trailing three-year period. With about 1281 holdings, it effectively diversifies company-specific risk.

Alternatives

IShares Morningstar SmallCap Growth ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, ISCG is a good option for those seeking exposure to the Style Box – Small Cap Growth area of the market. Investors might also want to consider some other ETF options in the space.

The iShares Russell 2000 Growth ETF (IWO) and the Vanguard SmallCap Growth ETF (VBK) track a similar index. While iShares Russell 2000 Growth ETF has $12.34 billion in assets, Vanguard SmallCap Growth ETF has $16.12 billion. IWO has an expense ratio of 0.24% and VBK charges 0.07%.

Bottom-Line

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.

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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iShares Morningstar SmallCap Growth ETF (ISCG): ETF Research Reports

Crocs, Inc. (CROX): Free Stock Analysis Report

iShares Russell 2000 Growth ETF (IWO): ETF Research Reports

Vanguard SmallCap Growth ETF (VBK): ETF Research Reports

ZoomInfo Technologies Inc. (ZI): Free Stock Analysis Report

Asana, Inc. (ASAN): Free Stock Analysis Report

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