SVAL: Unnecessarily Risky Place To Be Amid Higher Rates

Summary I maintain the Hold rating on the iShares US Small Cap Value Factor ETF. SVAL's portfolio is heavy in financials and offers a 6.8% earnings yield, 1.7x higher than IVV, but lacks sufficient quality and GARP characteristics. SVAL's selection process helps to eliminate a lot of value traps, yet only 38.4% of holdings have a Quant Profitability grade of B- or higher, indicating persistent quality concerns. My stance is neutral but increasingly skeptical; SVAL's deep value orientation with too-soft quality is unnecessarily risky in the current challenging macroenvironment. artisteer/iStock via Getty Images Today, I would like to provide an update on the iShares US Small Cap Value Factor ETF ( SVAL ), which is clearly overdue, as I previously covered this vehicle more than three years ago. At first This article was written by Vasily Zyryanov 2.28K Followers Follow Vasily Zyryanov is an individual investor and writer.He uses various techniques to find both relatively underpriced equities with strong upside potential and relatively overappreciated companies that have inflated valuation for a reason.In his research, he pays much attention to the energy sector (oil & gas supermajors, mid-cap, and small-cap exploration & production companies, the oilfield services firms), while he also covers a plethora of other industries from mining and chemicals to luxury bellwethers.He firmly believes that apart from simple profit and sales analysis, a meticulous investor must assess Free Cash Flow and Return on Capital to gain deeper insights and avoid sophomoric conclusions.While he favors underappreciated and misunderstood equities, he also acknowledges that some growth stocks do deserve their premium valuation, and its an investor's primary goal to delve deeper and uncover if the market's current opinion is correct or not. Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.