IShares Russell Mid-Cap Value ETF IWS provides a market-cap-weighted portfolio that effectively represents the mid-cap value Morningstar Category. Its diversification and low fee should make the fund hard to beat, supporting a Morningstar Analyst Rating of Bronze.

The fund tracks the market-cap weighted Russell Midcap Value Index, which captures the cheaper side of the mid-cap market. Value stocks are usually characterized by low price/book and low price/earnings ratios. Depressed valuations may be caused by slow earnings growth, poor fundamentals, or dim future prospects. While these may not be the most exciting firms, the low expectations implied in their valuations should be easier to beat. 

Market-cap weighting is an efficient way to allocate the portfolio because it harnesses the market’s consensus opinion on the relative value of each stock. Stocks that grow in size take up a larger share of the portfolio, while smaller companies that may be struggling take on a less important role. This pushes the fund up the market-cap ladder and cuts back on stock-specific risk. The average constituent has a market cap of about $17 billion, almost $5 billion larger than its average category peer. None of the portfolio's 700 holdings garner more than 1% of assets, and the top 10 holdings represented only 7% of the portfolio as of Dec. 31, 2022.

While some rivals venture further to the deep-value end of the Morningstar Style Box, this fund includes some blend and growth names in the portfolio. About 28% of the portfolio overlapped with its growth sibling, iShares Russell Mid-Cap Growth ETF IWP, at the end of 2022. The resulting allocation is more moderate than some peers. The fund remains an excellent representative of the category, though, so its low fee and broad diversification should help set it apart. 

The fund outperformed its average category peer by 38 basis points annualized over the 10 years through 2022. Volatility was lower thanks to its larger market-cap orientation, allowing it to carve out a modest risk-adjusted return advantage. 2022 saw a reversal of fortune, though, as the fund dropped 4 percentage points more than its average peer for the year. The blend and growth names present here dragged the fund down, as they performed considerably worse than value stocks for the year.

Analyst Rating

A compelling mid-cap value fund.

Associate Analyst

Zachary Evens

Phillips 66

Parker-Hannifin

Arthur J. Gallagher & Co.

Aflac

Marvell Technology

Carrier Global

PACCAR

Welltower

Williams

ON Semiconductor

The strategy effectively captures the full mid-cap value market segment and diversifies away most stock-specific risk with its broad reach. Additionally, market-cap weighting is an efficient approach, allowing investors to harness the market's collective wisdom for a low fee. The fund earns an Above Average Process Pillar rating. 

The fund fully replicates the Russell Midcap Value Index, which captures the cheaper half of the Russell Midcap Index. It assigns a composite style score to all mid-cap stocks based on their price/book ratio, two-year analyst consensus growth forecast, and five-year sales per share growth. Price/book receives a 50% weight in the calculation, and the two growth measures each receive 25%. FTSE Russell then buckets the cheaper half into the value index, with the most growth-oriented firms fully allocated to the Russell Midcap Growth Index. Stocks landing near the midpoint are partially allocated to both based on style traits. 

Market-cap weighting is an efficient way to allocate the portfolio because it harnesses the market's consensus opinion on the relative value of each stock. Stocks that grow in size take up a larger share of the portfolio, while smaller companies that may be struggling will take on a less important role. This approach also helps rein in turnover, which has averaged 23% over the past 10 years, considerably lower than its average peer. High turnover amplifies trading costs, which detracts from returns.

Above Average

Process

BlackRock's industry-leading technology, global footprint, and extensive supporting cast earn an Above Average People Pillar rating. The team employs BlackRock's Aladdin platform to fulfill much of its portfolio management tasks, and global trading desks allow for traders to conduct foreign transactions in a cost-effective way.

The iShares team has had some turnover over the past few years. But index-tracking performance should remain tight, thanks to heavily automated processes and several long-tenured mangers that remain at the helm. Rachel Aguirre left the team in March 2021 after she was promoted to iShares' head of product engineering. Paul Whitehead replaced Alan Mason as manager in January 2022, when Mason left to focus on the firm's customized institutional indexing capabilities. Whitehead joins Greg Savage, Jennifer Hsui, and Amy Whitelaw, who will continue to oversee this fund and have helped manage iShares ETFs since the early 2000s. 

These managers interact with a wider team of traders and managers around the globe to execute the fund's day-to-day operations. The larger number of managers also limits the impact of personnel turnover when it does occur. A portion of their compensation is tethered to index-tracking performance, which aligns the managers' interests with investors.

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 Russell Mid-Cap Value ETF

IWS tracks an index of US mid-cap value stocks. The index selects from the bottom 80% of the Russell 1000, screened for value factors.

iShares Russell Mid-Cap Value ETF classifies mid-cap stocks in value and growth subsets, and invests in the value part. The IWS ETF is diversified across sectors and holdings. It is on par with its parent index and its main competitor regarding historical performance and risk metrics.

IWS: A Well-Diversified Mid-Cap ETF

Looking for broad exposure to the Mid Cap Value segment of the US equity market? You should consider the iShares Russell Mid-Cap Value ETF (IWS), a passively managed exchange traded fund launched on 07/17/2001.

Should iShares Russell Mid-Cap Value ETF (IWS) Be on Your Investing Radar?

IWS invests mostly in value stocks of less sought-after economic segments. These stocks are not dividend paymasters but deliver strong price growth. IWS pays a consistent quarterly dividend and recorded an 8-year average yield of 2 percent. However, the total return has been impressive over the long run. IWS invested more than half of its assets in often overlooked sub-segments from four sectors - information technology, financial, industrial, and healthcare.

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