Hone in on Quality, Value Small-Cap Names with This ETF

For quality factors, the underlying index focuses on a company’s profitability, the historic stability of its profitability and debt coverage. For value factors, the index focuses on the free cash flow of a company compared to its enterprise value.

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Furthermore, each security’s momentum score, which is based on the price performance over the most recent 30 days, is used to determine the timing of the addition or deletion of the security. Position weights are then calculated using a composite score based on company fundamentals that include book value, revenue, free cash flow, and dividends paid.

“By using fundamental factors to weight stocks rather than market capitalization, the Underlying Index seeks to have lower exposure to overvalued companies, while still maintaining broad diversification,” according to Legg Mason.

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