This is a passive ETF that selects and invests in undervalued stocks, relative to fair value, from among U.S. small and mid-cap companies that Morningstar has judged to have economic moats. It screens stocks by weighing competitive advantage and valuation together.

It suits investors who want to invest in undervalued small and mid-cap stocks with competitive advantages and are willing to accept small and mid-cap volatility.

It is an ETF managed by VanEck using a passive (index-tracking) approach.

It tracks an index that selects and holds undervalued stocks, relative to fair value, from among U.S. small and mid-cap companies that Morningstar has judged to have economic moats. By weighing competitive advantage and valuation together, it follows a rules-based structure that concentrates on small and mid-cap companies that have moats yet remain undervalued.

• Evaluates economic moat and undervaluation together
• Concentrates on small and mid-cap moat companies

Assets under management (AUM) stand at $321.0M, and the expense ratio is an annual 0.49%.

Compared with a plain mid-cap index ETF or a large-cap moat ETF, its concentration on small and mid-cap moat and undervaluation is the main point of comparison.

Small and mid-cap moat stocks react sensitively to the economic cycle, interest rates, and market risk appetite, and moat and undervaluation strategies tend to show relative strength when value stocks are in favor and relative weakness when growth stocks lead. Given the nature of small and mid-cap stocks, volatility tends to be higher than for large caps.

Fund flows into small and mid-cap moat stocks diverge depending on the economic outlook, risk appetite, and style rotation, and money sometimes shifts toward related product groups when interest in moat and value investing rises. It is also worth watching how performance varies with the economy and style rotation.

Its strengths are moat and undervaluation screening and small and mid-cap exposure, while small and mid-cap volatility, weakness in growth-led markets, and tracking differences are considerations.

For mid-cap exposure without moat screening, direct substitutes include IWR and VO, and for other mid-cap exposure, products such as MDY are also worth comparing. This ETF is differentiated by its narrower exposure to undervalued small and mid-cap stocks with economic moats, and unlike large-cap moat products, it concentrates on the small and mid-cap segment.

Here are the points to check before investing in SMOT. Moat and undervaluation screening and small and mid-cap exposure are appealing, but small and mid-cap volatility, weakness in growth-led markets, and tracking differences need to be confirmed in advance. It is also a good idea to compare it with plain mid-cap and large-cap moat products.

Relative weakness in growth-led markets, small and mid-cap volatility, and tracking differences are the main variables for long-term performance, and moat and undervaluation screening can make its composition differ from market-cap-weighted small and mid-cap indexes. Given the nature of small and mid-cap stocks, declines can be steep during market crashes.

It is a suitable candidate for investors who want to invest in undervalued small and mid-cap stocks with competitive advantages. If plain mid-cap exposure is the priority, compare products such as IWR and VO, and if you want small and mid-cap moat and undervaluation screening, it is advisable to weigh this product alongside them.