While the quality and value factors often appear together across various stocks and ETFs, that should not be interpreted to mean that all quality stocks and ETFs are discounted relative to the broader market. During periods of elevated market volatility, the quality factor has historically posted better returns relative to other investment factors.
“The types of stocks the fund favors have tended to hold up a little better than average in market downturns,” according to Morningstar. “Their competitive advantages help protect profits and should make them slightly less sensitive to the business cycle than less-advantaged firms. For instance, during the bear market from late 2007 through early 2009, the fund’s index cumulatively lost 47.0%, while the MSCI USA Index lost 54.7%.”
The $4.35 billion QUAL holds 125 stocks. QUAL allocates over a quarter of its weight to the technology sector and 28% of its combined weight to the financial services and healthcare stocks. The ETF is up 2% year-to-date.
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