Are you looking for broad exposure to the Small Cap Value segment of the US equity market? The JPMorgan BetaBuilders U.S. Small Cap Equity ETF (BBSC) might be a compelling option for you. Launched in November 2020, BBSC is a passively managed exchange traded fund (ETF) sponsored by J.P. Morgan. With over $520.35 million in assets under management, BBSC is a mid-sized ETF that seeks to track the performance of the Morningstar US Small Cap Target Market Exposure Extended Index, a free-float adjusted, market-cap weighted index targeting small cap securities traded in the U.S.
Why Small Cap Value?
Small cap companies, characterized by market capitalization below $2 billion, often have higher potential for growth compared to their larger counterparts, though they also carry higher risk. Value stocks, on the other hand, are typically undervalued in the market, exhibiting lower than average price-to-earnings and price-to-book ratios. While they might have lower than average sales and earnings growth rates, value stocks have a proven track record of outperforming growth stocks in the long run. However, in strong bull markets, growth stocks tend to outperform.
Cost Efficiency and Dividends
Investors should prioritize cost-effective funds as lower expense ratios generally lead to better returns. BBSC boasts an annual operating expense ratio of just 0.09%, making it one of the least expensive ETFs in its category. It also offers a 12-month trailing dividend yield of 1.48%, providing investors with a stream of income.
Sector Exposure and Holdings
While ETFs offer diversification and reduce single-stock risk, it’s crucial to examine their holdings. BBSC, being transparent, publicly discloses its holdings daily. The ETF has a significant allocation to the Financials sector, accounting for approximately 19.90% of the portfolio. Healthcare and Industrials make up the remaining top three sectors. Among individual holdings, JPMorgan US Govt Mmkt Fun comprises about 1.50% of total assets, followed by Insmed Inc Common Stock and Carpenter Technology. The top 10 holdings account for roughly 5.66% of the total assets under management.
Performance and Risk
BBSC aims to mirror the performance of the Morningstar US Small Cap Target Market Exposure Extended Index, excluding fees and expenses. In 2024 (as of September 16th), the ETF has returned approximately 7.42%, demonstrating positive performance. Its one-year return stands at roughly 20.46%. Over the past 52 weeks, BBSC traded between $48.58 and $67.50. The ETF has a beta of 1.08 and a standard deviation of 23.45% for the trailing three-year period. With around 796 holdings, BBSC effectively diversifies company-specific risk.
Alternatives and Bottom Line
BBSC holds a Zacks ETF Rank of 2 (Buy), based on expected asset class return, expense ratio, momentum, and other factors. This makes it an excellent choice for investors seeking exposure to the Small Cap Value segment. Investors can also explore alternative ETFs in the space, including the Avantis U.S. Small Cap Value ETF (AVUV) and the Vanguard Small-Cap Value ETF (VBR), both tracking similar indices. While AVUV holds $12.95 billion in assets, VBR boasts $29.58 billion. AVUV has an expense ratio of 0.25%, while VBR charges 0.07%.
Passively managed ETFs like BBSC are gaining popularity among both institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency. They are particularly well-suited for long-term investors seeking to build a robust investment portfolio.
This content is intended for informational purposes only and should not be considered investment advice.
