LRGF holds nearly 150 stocks, none of which exceed weights of 2.54%. The ETF’s largest sector allocation is 23.56% to technology. Industrial and healthcare stocks combine for about 26.6% of the fund’s roster. Financial services and consumer discretionary stocks combine for 20.6%.
LRGF “fund uses an optimizer to construct its portfolio that weighs each stock’s targeted factor characteristics against its risk contribution,” according to Morningstar. “This approach leads to inconsistent factor loadings because the optimizer shrinks its allocation to factors as their volatility increases. By targeting factors with low correlations to each other and constraining its stock and sector weightings, this strategy should diversify risk. But the optimization process is complex and opaque, which makes it difficult to assess how the portfolio will shake out.”
LRGF charges 0.20% per year, or $20 on a $10,000 investment, putting it on the lower end of expenses for U.S. large-cap smart beta strategies.
For more information on multi-factor strategies, visit our smart beta category.