This report provides an in-depth examination of the iShares International Small-Cap Equity Factor ETF (ISCF), a fund designed to invest in small-capitalization companies within developed markets globally. The fund's strategy is built upon a factor-based approach, aiming to identify equities with specific characteristics that historically have led to strong returns. We will delve into ISCF's portfolio composition, its recent performance relative to benchmarks like IVV and SPDW, and offer a forward-looking perspective on its potential in the coming years.
Unlocking Global Small-Cap Potential: A Factor-Driven Approach
Introducing the iShares International Small-Cap Equity Factor ETF
The iShares International Small-Cap Equity Factor ETF (ISCF) is a passively managed exchange-traded fund. It provides investors with exposure to small-capitalization equities in developed economies worldwide. The fund's investment methodology is sophisticated, utilizing a factor-driven process to select its holdings. This approach aims to identify companies that exhibit specific financial characteristics, such as value, momentum, quality, or low volatility, which are believed to contribute to long-term outperformance.
Portfolio Composition and Geographical Focus of ISCF
ISCF's portfolio is diversified across approximately 1,097 small-cap companies. A notable aspect of its geographic allocation is its significant weighting towards Japanese and UK equities. This concentration suggests that the fund's performance can be heavily influenced by economic conditions and market trends in these two regions. Understanding the macroeconomic outlook for Japan and the UK is therefore crucial for investors considering ISCF.
ISCF's Performance in 2025: A Strong Showing
In 2025, ISCF recorded impressive performance, surpassing the IVV by approximately 14.9%. This strong showing was primarily attributed to the robust performance of several major currencies, including the Euro, Pound Sterling, and Australian Dollar, against the US Dollar. The appreciation of these currencies enhanced the returns for US-based investors holding assets denominated in these foreign currencies, contributing positively to ISCF's overall performance.
Historical Performance: A Mixed Bag for ISCF
Despite its strong performance in 2025, a broader historical analysis reveals a more nuanced picture. Between March 2023 and November 2025, ISCF delivered an annualized return of 15.13%. However, during this period, it significantly underperformed both IVV and SPDW, two commonly referenced benchmarks. This underperformance suggests that while ISCF can experience periods of strong returns, it may also lag behind broader market indices over longer horizons.
Outlook for 2026: A Skeptical View
Considering the historical performance patterns, there is a degree of skepticism regarding ISCF's ability to outperform IVV in 2026. The 'Hold' rating assigned to the fund reflects this cautious outlook. Investors should carefully weigh ISCF's factor-driven approach and its regional concentrations against its historical volatility and relative performance when making investment decisions for the upcoming year.
