Is now the time for a quality growth ETF? With inflation coming in much cooler than expected, it may be time to take a closer look. All year, the Fed’s battle to tame inflation has produced significant uncertainty. Should a much-cooler-than-expected inflation report actually produce an end to rate hikes, not only does a higher-for-longer regime offer predictability, but it also feeds markets’ hopes for eventual rate “cuts.” Those changes could position a quality growth ETF like QGRW to do well.
The Consumer Price Index slowed to 3.2% last month based on a year-over-year reading. That number came in lower than it has since July and, when added to slumping two-year Treasury yields, which are sensitive to changes in interest rate expectations, it paints a picture of cooling inflation. With the Fed perhaps finally vindicated in its fast-paced rate hike scheme, that rate hike uncertainty may settle down.
As such, it may be time to look towards a quality growth ETF approach instead. QGRW, the WisdomTree U.S. Quality Growth Fund, takes such an approach. The strategy tracks the WisdomTree U.S. Quality Growth Index for a 28 basis point (bps) fee.
In doing so, it tracks a market-cap weighted index of 100 large-cap growth firms in the U.S. It looks for those firms that meet certain quality standards per a compositive score. That score relies on equally-weighted growth and quality factors, with the former relying on firms earnings insight and sales growth, and the latter on three-year average return on equity and return on assets. Capping individual securities at 15% to ensure diversification, its strategy also considers liquidity requirements, too.
That approach has helped QGRW return 47.4% YTD, outperforming both its ETF Database Category and Factset Segment averages. Picking up $42.3 million in the last six months, too, it represents an intriguing quality growth ETF approach entering a potentially more upbeat 2024.
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