A sound investment process and strong management team underpin iShares Morningstar Small-Cap Growth ETF's Morningstar Medalist Rating of Silver. The portfolio maintains a cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in liquidity exposure and volatility exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. The equity team managing the passive product drives the strategy's Above Average People Pillar rating. The strategy has a solid parent that earns an Above Average Parent Pillar rating. This firm has had overall affordable fees and a favorable lineup success ratio.

Analyst Rating

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Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. iShares Morningstar Small-Cap Growth ETF earns an Above Average Process Pillar rating. The leading factor in the rating is the parent firm's five-year risk-adjusted success ratio of 60%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. This fund tracks an index, which also increases its process rating. Historical data, such as Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. 

The investment strategy as stated in the fund's prospectus is:  The investment seeks to track the investment results of the Morningstar® US Small Cap Broad Growth Extended IndexSM composed of small-capitalization U.S. equities that exhibit growth characteristics.  The fund will invest at least 80% of its assets in the component securities of its underlying index and in investments that have economic characteristics that are substantially identical to the component securities of its underlying index. The underlying index measures the performance of U.S. stocks issued by small-capitalization companies that have exhibited above-average “growth” characteristics as determined by Morningstar and Inc.’s proprietary index methodology. 

 The portfolio has allocations in its top two sectors, real estate and communication services, that are similar to the category. The sectors with low exposure compared to category peers are healthcare and financial services, with healthcare underweighting the average portfolio by 2.9 percentage points of assets and financial services similar to the average. The strategy owns 1,098 securities and is less top-heavy than peers. Specifically, 4.8% of the fund’s assets are concentrated within the top 10 fund holdings, compared to the category average's 25.3%. And finally, in terms of portfolio turnover, this portfolio turns over its holdings less quickly than peers, potentially leading to lower costs for investors and eliminating a drag on performance.

Above Average

Process

iShares Morningstar Small-Cap Growth ETF's strong equity team drives the strategy's Above Average People Pillar rating. There are three managers listed on the fund: Paul Whitehead, Jennifer Hsui, Greg Savage. The team is well equipped, with an average of 17 years of portfolio management experience. Together, they manage a total of 258 strategies, with solid long-term prospects. The strategies average a Silver asset-weighted Morningstar Medalist Rating, indicating a position to deliver positive alpha relative to the category median in aggregate. The team has lacked continuity recently, with Amy Whitelaw leaving in the last five months, detracting from its rating. Even though it is a passive fund, high turnover can still hinder the effectiveness of the investment process. 

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

People

BlackRock offers compelling options across asset classes and vehicles. It earns an Above Average rating for Parent. 
The firm’s approximately USD 8 trillion in assets under management, as of Sept. 30, 2022, gives it unparalleled scale and influence. It is a market-leading index fund provider globally, and its iShares exchange-traded fund franchise offers a low-cost lineup of core funds that investors can use to build a well-diversified portfolio for dirt cheap. The firm can be more adventurous in its ETF launches than some peers, so not everything it launches is appropriate for the masses. As a result, it is likely to have more ETF closures than peers that stick to the basic building blocks.  
The firm’s active fixed-income and multi-asset efforts also stand out as some of the best in the industry. Those benefit from BlackRock’s commitment to building a first-class risk management system via its Aladdin analytics software. The software is also available for sale to other firms and has proved to be a popular option for competitors, a testament to its usefulness. 
More recently, the firm has shifted its focus to ESG offerings and incorporating ESG across its investment lineup, leading to a political backlash in the United States.
BlackRock isn’t the best at everything it tries to do, but retail investors, financial advisors, and large institutions could all build robust portfolios using BlackRock’s products.

Parent

iShares Morningstar Small-Cap Growth ETF

ISCG tracks a market-cap-weighted index of US small-cap growth stocks. The index selects stocks from 90-99.5% of market cap that fall into Morningstar's growth style categorization.

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

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