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.