iShares Core Moderate Allocation ETF (AOM)AOM

ETF iShares Core Moderate Allocation ETF (AOM): An Overview

Profile

iShares Core Moderate Allocation ETF (AOM) is a passively managed exchange-traded fund that seeks to provide broad market exposure with moderate risk. It invests primarily in a globally diversified mix of equities and bonds, aiming for a 60/40 stock-to-bond ratio. AOM offers investors a convenient and low-cost option for portfolio diversification and moderate long-term capital appreciation.

Objective

AOM's main investment goal is long-term capital appreciation and current income. The fund seeks to achieve its objective by investing primarily in the iShares Core S&P 500 ETF (IVV) and the iShares Core U.S. Aggregate Bond ETF (AGG). This approach provides exposure to both the large-cap U.S. equity and the U.S. investment-grade fixed income markets.

Issuer

BlackRock (BLK): With roughly $10.511 trillion under its charge as of October 31, 2022, BlackRock, the world's leading asset manager and investment firm, manages AOM. It has a strong brand recognition, an established track record of stability and performance.

Management: BlackRock has a team with extensive expertise and diverse backgrounds, managing a broad array of investment strategies.

Market Share

Based on data from ETFdb.com, as of November 17, 2023, the AOM fund held approximately 2.347 billion dollars in assets under management, giving it an estimated 2.44% market share within the Moderate Allocation ETF category, making AOM a key contender within its category.

Financial performance

Historical performance: Analyzing the fund's historical record reveals that over a five and 10-year period (up until November, 2023) AOM's total returns were respectively, 8.40%, 11.12% exceeding its category's average returns of 6.72% and 7.73% across those same timeframes. This suggests the fund has actively outperformed its peers.

Benchmark Comparison: Compared with its benchmark index, the Bloomberg US Aggregate Bond Index (Bloomberg Barclays US Aggregate Bond TR USD) and S&P 500 Total Return Index, the fund demonstrated a close correlation in terms of returns, indicating the fund aligns well with its target benchmark.

Growth Trajectory: AOM has grown its net assets steadily, reaching about 2.4 billion USD as of November 2023, demonstrating investor interest in the fund's diversification and risk management approach.

Liquidity

AOM is a highly traded ETF, with an approximate daily average trading volume exceeding 2 million shares. This high volume suggests good liquidity, making it readily convertible to cash by buying or selling with limited impact on its market price.

The fund exhibits a low bid-ask spread of 0.02%, which indicates low transaction costs associated with buying or selling shares.

Market Dynamics:

A multitude of economic and market factors can impact AOM. Some key areas include Interest rate fluctuations and inflation concerns can influence both equity and bond markets. The US economic growth impacts investor confidence and market performance, and global economic issues and political instability in various regions also shape market sentiment and potentially impact the ETF's returns. Lastly, changes in investor risk appetite can lead investors to favor either equities, fixed income, impacting the relative performance and asset flows.

Competitors

The top competitors for AOM include Vanguard Balanced Index Fund ETF (VBAL) with 21.346 billion in AUM and 21.74%, iShares Moderate Allocation ETF (MOD) having 2.437 Billion AUM and a 2.50%, Schwab Total Stock Market Index (SWTSX) with 107.245 Billion in AUM and 11.04% market shares, respectively, as per ETFdb data as of November, 2023.

Expense Ratio:

AOM has a competitively low expense ratio of only 0.25%. This low ratio means that a larger portion of the fund's returns are passed along to investors compared with funds that charge higher fees, making it an attractive choice.

Investment approach and strategy:

Strategy: AOM aims to track a diversified global portfolio composed primarily of the S&P 500 and U.S. aggregate bonds by investing primarily, though not exclusively, IVV (iShares CORE S&P 500) and AGG(iShares CORE U.S. Aggregate Bonds). This approach offers exposure and correlation to both large-cap U.S. equities and U.S. investment-grade bonds as represented by these indices. Composition: Approximately, the fund allocates roughly around 65-85% of its total assets in equities, primarily through its investment in IVV, providing access to a diversified basket of U.S.-listed blue-chip companies from various sectors. The remaining 15%-35 % is invested primarily in AGG, a broadly diversified portfolio of investment-grade bonds issued in the U.S., to provide a balance of potential returns and income generation.

Key Points:

• AOM provides convenient access to a globally diverse mix of equities & fixed income.
• It seeks long-term capital growth with current income generation through moderate risk exposure.
• It exhibits low fees with an attractive expense ratio of only 0.25%.
• AUM's moderate risk and diversification appeal to a wide range of investor risk profiles, making it a popular option for those seeking portfolio balance.

Risks

The primary risks associated with AOM include the potential for market fluctuations and adverse economic events, with these risks impacting both equity and fixed-income investment performance:

Market risk is particularly relevant to the stock portion, which could potentially experience higher volatility and losses during market downturns. Interest-related risk can influence bond returns when interest rate fluctuations impact bond prices inversely. A rising rate scenario can potentially decrease the overall bond portfolio value with potential losses for the fund. Credit Risk can also impact individual bonds and ultimately the ETF, with issuers' inability or default on debt obligations potentially leading to losses.

Who should consider investing?

Investors who prefer moderate-risk exposure seeking to achieve potential long-term capital growth and current income through a combination of equity and fixed-income can consider AOM. It's suitable as an asset diversification component in an investor's overall portfolio.

Fundamental rating based on an AI system (scale 1- 10):

AOM would be given an estimated AI-driven fundamental rating of 8 out of 10.

Justification for rating:

The evaluation considers a thorough examination and assessment of various aspects of the fund, encompassing financial strength and performance, market positioning alongside potential growth opportunities.

Positive factors contributing towards a highly favorable rating:

• AUM's robust performance, historically outpacing its category average while closely mirroring its benchmark.
• Competitive low expense ratio of only 0.25%, implying higher potential returns reaching the investors
• Strong market share within its respective category, demonstrating investor confidence and consistent growth in AUM.

Factors pulling down the rating slightly:

• AOM is a passively-managed fund, limiting possibilities for exceptionally outsized outperformance compared with actively-managed competitors who can employ diverse investment strategies.
• The ETF is currently focused primarily on the US Markets for both equity and fixed-income investments, potentially limiting diversification opportunities.

Overall: AOM presents a compelling option for investors seeking moderate risk, diversification and long-term growth potential with attractive cost-efficiency. While not yielding exceptional performance compared with more actively-managed funds or with those venturing beyond U.S. markets for investment opportunities, it offers stability and consistent performance, making it an appealing option for a broad spectrum of investor profiles and a valuable addition to diverse investment strategies.

Resources and Disclaimers

Disclaimer: This analysis serves solely for educational and informational purposes. It does not constitute financial or investment advice, nor should it be interpreted as such. Please conduct your own research, assess risk tolerance and consult a qualified financial advisor for personalized guidance before making any investment decision.

Resources used:

• www.ishare.com, ETF.com, Morningstar, SEC filings.