Should the Invesco S&P SmallCap 600 Pure Value ETF (RZV) Be on Your Investing Radar?

The Invesco S&P SmallCap 600 Pure Value ETF (RZV) was launched on March 1, 2006, and is designed as a passively managed exchange-traded fund that seeks to provide broad coverage of the small-cap value segment of the U.S. equity market.

Sponsored by Invesco, the fund has gathered over $271.34 million in assets, which positions it as an average-sized ETF focusing on the small-cap value space.

Why Small Cap Value?

Investing in small-cap companies has its own set of challenges and opportunities. These firms typically have market capitalizations of less than $2 billion, which can result in higher potential returns but also increased risks.

Value stocks, featuring lower-than-average price-to-earnings and price-to-book ratios, often demonstrate reduced sales and earnings growth rates compared to their growth-oriented counterparts. Historically, value stocks have outperformed growth stocks across various market conditions, particularly over the long term. However, in strong bull markets, growth stocks may exhibit superior performance.

Costs

The cost of an ETF is a foundational aspect that affects its returns. In the long term, lower expense ratios can enable funds to outperform their higher-cost peers if other conditions remain constant.

The Invesco S&P SmallCap 600 Pure Value ETF has annual operating expenses of 0.35%, which aligns with the average fees for similar funds in the market.

Currently, it boasts a 12-month trailing dividend yield of 1.04%.

Sector Exposure and Top Holdings

Before investing in any ETF, it's prudent to analyze its holdings. While ETFs typically provide diversified exposure, which can mitigate single-stock risks, this transparency allows informed decision-making.

This ETF predominantly invests in the Financials sector, which makes up approximately 22.80% of its portfolio. The next largest sectors are Industrials and Consumer Discretionary.

Looking at individual holdings, Echostar Corp (SATS) represents about 2.27% of total assets. Other significant holdings include Phinia Inc (PHIN) and Fresh Del Monte Produce Inc (FDP). The top ten holdings comprise roughly 19.29% of total assets managed.

Performance and Risk

RZV aims to replicate the performance of the S&P SmallCap 600 Pure Value Index, which evaluates securities with strong value characteristics within the S&P SmallCap 600 Index.

So far this year, the ETF has delivered an approximate return of 11.09% and has increased about 21.07% over the past year (as of December 11, 2024). In the previous 52 weeks, its trading range has varied between $96.80 and $119.36.

With a beta of 1.43 and a standard deviation of 24.23% for the trailing three-year period, RZV is identified as a high-risk investment. However, with about 137 holdings, the fund effectively mitigates company-specific risks.

Alternatives

The Invesco S&P SmallCap 600 Pure Value ETF currently holds a Zacks ETF Rank of 3 (Hold), based on criteria such as expected asset class returns, expense ratios, and momentum. Thus, it's a viable option for investors seeking exposure to the small-cap value segment of the market. Additionally, investors may want to explore other ETF options in this category.

For example, the Avantis U.S. Small Cap Value ETF (AVUV) and the Vanguard Small-Cap Value ETF (VBR) track similar indices. The Avantis U.S. Small Cap Value ETF manages $15.99 billion in assets, while the Vanguard option holds $32.65 billion. Furthermore, AVUV's expense ratio stands at 0.25%, whereas VBR charges a lower fee of 0.07%.

Bottom Line

Passively managed ETFs are increasingly appealing to both retail and institutional investors due to their low costs, transparency, flexibility, and tax efficiency. They serve as excellent choices for long-term investors.

To explore more about this product and similar ETFs, it is advisable to look for offerings that align with your investment goals and to keep up with the latest trends in the ETF investment landscape.

ETF, Investing, SmallCap