Weighed on by inflation concerns, Fed rate hikes, and slowing economic growth, U.S. equities posted their worst first-half performance since 1970.
Dividend, value, and low volatility strategies outperformed in the first half of the year, signaling the market’s continuing emphasis on defense. Growth and High Beta have been the year’s worst performers, according to S&P Dow Jones Indices.
Investors seeking a defensive approach to U.S. quality should consider the FlexShares Quality Dividend Defensive Index Fund (QDEF), which has $370 million in assets under management and charges a 37 basis point expense ratio, according to VettaFi.
QDEF is part of Northern Trust’s stable of proprietary twists on factor investing. The fund follows a Northern Trust index that selects dividend-paying large-cap U.S. equities. However, the index weights the portfolio toward companies that earned the highest “dividend quality” scores, according to VettaFi. To prevent unintentional concentrations, the methodology caps the weighting of individual securities, industry groups, sectors, and styles.
The fund offers a “defensive” spin. QDEF aims to deliver “below market beta exposure,” which is jargon used to describe how volatile the performance is relative to the market. It’s another way of saying QDEF tries to tamp down volatility.
The approach to market beta is the nuance that sets it apart from its sister funds the FlexShares Quality Dividend Index Fund (QDF) and the FlexShares Quality Dividend Dynamic Index Fund (QDYN), which aim to match or exceed market swings, respectively.
In practice, all three funds share many of the same top holdings, including blue-chip stocks like Apple, Johnson & Johnson, and Microsoft. The differences between the funds come down to weighting. QDEF might have less invested in volatile tech stocks, and more in staid utilities, to help the fund deliver below-market beta exposure.
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