ETF Talk: This Fund Tracks Fundamental Small-Cap Value

The Invesco S&P SmallCap 600 Pure Value ETF tracks a fundamentally weighted index of U.S.-listed small-cap value companies. RZV provides a unique take on small- and micro-cap value exposure, focusing on value stocks. However, its various size and sector bets heighten market risk.

As a result, investors interested in its high-beta play on small-cap value stocks also should factor in higher transaction costs due to a modest daily volume (the number of total shares traded in a given day for one stock) and sizeable spreads.

Even so, RZV replicates its index efficiently by only charging its shareholders a modest fee. The fund invests at least 90% of its total assets in securities that comprise the Index, which measures the performance of small-cap equities that exhibit strong value characteristics in the S&P SmallCap 600 Index.

The fund has struggled a bit so far in 2018, down 6.27% through Nov. 30, after rising just 1.24% in 2017. RZV???s performance has lagged since it soared 33.95% in 2016. The variation in its performance shows the fund???s volatility, and the need for investors to be comfortable with such wide swings.

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RZV???s value is measured by the following risk factors: book value-to-price ratio, earnings-to-price ratio and sales-to-price ratio. The fund and the Index are rebalanced annually.

The top RZV sectors include consumer cyclical, industrials, technology, financial services and energy. Among the fund???s top 10 holdings, 15.45% are in Office Depot (NASDAQ: ODP), Renewable Energy Group, Inc. (NASDAQ: REGI), GameStop Corp. Class A (NYSE: GME), Shoe Carnival, Inc. (NASDAQ: SCVL), Barnes & Noble, Inc. (NYSE: BKS), ScanSource, Inc. (NASDAQ: SCSC), Green Plains Inc. (NASDAQ: GPRE), OFG Bancorp (NYSE: OFG), Seneca Foods Corporation Class A (NASDAQ: SENEA) and Veritiv Corp. (NYSE: VRTV).

RZV currently has $163.35 million in net assets and an average 0.43% spread, which is the difference between the bid and asking prices of a security. The fund also has an expense ratio of 0.35%, so it is relatively cheap to hold in comparison to other exchange-traded funds.

In short, this ETF offers a distinct model for investors looking to add small-cap stocks to their portfolio. It focuses on securities that display strong value characteristics and uses an efficient index. However, due to the relative volatility of small-cap stocks, investors should, as always, perform their own due diligence to decide whether or not this fund is suitable for their portfolios.