The iShares Morningstar Value ETF (ILCV) seeks to track the Morningstar Wide Moat Focus Index, which measures the performance of undervalued companies with sustainable competitive advantages or 'economic moats.' This value-focused equity ETF targets U.S. stocks trading below their estimated fair value while possessing durable business moats.
How It Works
ILCV uses a fundamentally-driven, equal-weighted approach that combines Morningstar's proprietary moat ratings with valuation analysis. The fund selects approximately 40-50 stocks from companies rated as having wide economic moats, then applies valuation screens to identify those trading at significant discounts to fair value estimates. Holdings are equally weighted and rebalanced semi-annually, ensuring no single position dominates the portfolio while maintaining focus on undervalued, high-quality businesses.
Key Features
- Combines economic moat analysis with deep value screening, targeting undervalued companies with sustainable competitive advantages
- Equal-weighted approach prevents large-cap bias common in market-cap weighted value ETFs, enhancing diversification benefits
- Concentrated portfolio of 40-50 holdings allows for meaningful exposure to each selected undervalued, moat-rated company
Risks
- This ETF can lose value if value investing falls out of favor, as it has underperformed growth strategies during extended bull markets like 2010-2020
- Concentrated portfolio of 40-50 stocks creates higher single-stock risk compared to broad market ETFs, potentially amplifying individual company disappointments
- Value stocks can remain undervalued for extended periods, potentially underperforming growth stocks during momentum-driven markets for multiple years
Who Should Own This
Best suited for contrarian investors with 3-7 year time horizons seeking exposure to undervalued, high-quality companies as a satellite holding (10-25% of equity allocation). Medium-to-high risk tolerance required due to value investing's cyclical nature and concentrated portfolio. Appeals to investors who believe in fundamental analysis and patient capital appreciation over momentum strategies.