While not actively managed, the STOXX U.S. Quality Value ETF incorporates a smart beta strategy reminiscent of actively managed investments and tries to reflect the performance of the iSTOXX American Century USA Quality Value Index, which is made up of 900 largest publicly traded U.S. equity securities screened and weighted by fundamental measures of quality, value and income.
The quality factor screens out the bottom companies based on profitability, earnings quality, management quality and earnings estimate revisions. The valuation score is calculated by the attractiveness of each stock relative to peers in the same industry group based on value, earnings yield and cash flow yield metrics. Lastly, income sustainability is based on dividend growth and dividend coverage applied to eliminate the bottom of the universe of dividend-paying stocks, along with an income score based on dividend-yield computed for the remaining stocks.
The Diversified Corporate Bond ETF, though, is actively managed. The fund invests in U.S. dollar-denominated corporate debt securities issued by U.S. and foreign entities, but may also hold securities issued by supranational entities. Additionally, up to 35% of the fund’s net assets may be invested in high-yield securities or junk bonds. The fund may also invest in derivative instruments such as futures contracts and swap agreements. The weighted average duration of the fund’s portfolio is expected to be between three and seven years.
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