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Plain vanilla, broad market exchange-traded funds (ETFs) focusing on U.S. equities are the most popular part of the ETF universe, and while that market segment may appear saturated, issuers are finding ways to bring new products to market. That includes the iShares Russell 2500 ETF (SMMD), which debuted last week.
The new ETF tracks the Russell 2500 Index, which is designed to give investors broad-based exposure to mid- and small-cap stocks. Investors should note that the iShares Russell 2500 ETF does not hold 2,500 stocks. Rather, the new ETF features 491 holdings and uses the popular iShares Russell 2000 ETF (IWM) to deliver small-cap exposure. IWM, the largest small-cap ETF in the U.S., tracks the widely followed Russell 2000 Index. That small-cap ETF represents 43.7% of SMMD’s weight. None of the new ETF’s other holdings command more than 0.47% of the fund’s weight. (See also: Finding the Right Size With Mid-Cap ETFs.)
“The Russell 2500 has long been a staple for institutional investors but lacked a turnkey ETF implementation,” said Martin Small, head of U.S. iShares at BlackRock, Inc. (BLK), in a statement. “SMMD will be the first ETF to bring Russell’s ‘smid’ cap index to the fast-growing ETF market, and it aims to provide lower cost efficient exposure to equities with growth potential.”
By way of its massive exposure to IWM, the new SMMD is top-heavy at the sector level, with financial services stocks accounting for 51.7% of the new ETF’s weight. That is more than five times larger than the new ETF’s second largest sector allocation, which is industrials. Technology and consumer discretionary names round out SMMD’s top four sector weights.
“With the introduction of SMMD, BlackRock now offers 15 iShares ETFs based on Russell indexes, the largest offering in the industry,” according to BlackRock. “The components of the well-known Russell indexes enable investors to easily customize their U.S. stock market allocation.”
SMMD charges 0.15% per year, or $15 on a $10,000 investment. The new ETF is the 43rd member of the iShares stable to list on the Bats ETF Marketplace. The Bats ETF Marketplace is home to 182 ETFs from 35 issuers, with iShares being the largest issuer on the exchange. (See also: Investing in the Overlooked SMid-Cap Space.)