A Quality Cocktail With This New ETF
June 12th, 2014 at 9:00am by Todd Shriber
Although there is some discord on the quality factor and how to gauge it, historical data suggest that when combined with other factors, quality can drive out-performance.
The quality factor “captures excess returns to stocks that are characterized by low debt, stable earnings growth and other ‘quality’ metrics,” according to MSCI.
It is that approach to quality that serves as the backstop for the new SPDR MSCI World Quality Mix ETF (NYSEArca: QWLD). QWLD, which charges 0.3% per year, tracks an equal-weighted combination of the MSCI World Value Weighted, MSCI World Minimum Volatility and MSCI World Quality Indices in a single composite index.
Quality at the country level for QWLD means an almost 60% allocation to U.S. stocks, more than seven times the ETF’s second-largest county weight, the U.K. Japan, Switzerland and Canada combine for over 17% of QWLD’s weight. [A Quality Emerging Markets ETF]
With over 1,600 holdings, QWLD is a quality idea for the investor that likes a deep bench approach to ETFs. QWLD’s underlying index has a decent dividend yield of 2.54% and despite the emphasis on quality an lower volatility, investors are not paying up for those privileges as QWLD’s index has P/E ratio of about 15.3, indicating a slight discount to the U.S. broader market.
QWLD’s top-10 holdings include Dow components Exxon Mobil (NYSEArca: XOM), Microsoft (NasdaqGS: MSFT) and Johnson & Johnson (NYSE: JNJ) along with Apple (NasdaqGS: AAPL). Swiss drug giant Roche is the lone foreign holding QWLD’s top-10 lineup, which combines for about 14% of the ETF’s weight.
Although financials are the largest sector weight at just over 15%, five other sectors – health care, technology, staples, discretionary and industrials – receive double-digit allocations.
In the upcoming Multi-Factor Index Investing webcast, Scott Conlon, portfolio strategist for State Street Global Advisors, David Mazza, Head of ETF Investment Strategy at SSgA, and Dimitris Melas, managing Director and Global Head of New Product Research at MSCI, will provide an overview on smart-beta, or advanced-beta, index ETF investments that utilize multiple factors to select component stocks.
QWLD Sector Weights
Chart Courtesy: State Street
Tom Lydon’s clients own shares of Apple and Microsoft.
Financial advisors who are interested in learning more about multi-factor index investments can register for the Thursday, June 12 webcast here.