Use 'QLC' to Snag Core Exposure with a Touch of Quality

With markets soaring to new heights, getting core large cap exposure with a touch of quality may be optimal with funds like the FlexShares US Quality Large Cap Index Fund (QLC).

“Nationwide COVID-19 vaccinations, soaring consumer and business sentiments, the gradual improvement in the struggling labor market, Fed’s ongoing easy-monetary policy and the Fed Chairman’s reiteration that the inflation is transitory despite raising the inflation forecast for 2021 are paving the way for a northward journey of Nasdaq Composite index in the rest of 2021, boosted by investor confidence,” a Zacks article published in Yahoo! Finance noted.

QLC seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust Quality Large Cap Index. The underlying index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to quality, value, and momentum factors relative to a universe of publicly-traded U.S. large-capitalization equity securities.

“For many investors, large-cap stocks comprise the core of their portfolio’s equity allocation,” a FlexShares Fund Focus article explained. “And while large-cap stocks have historically been consistent drivers of performance, the returns of many large-cap equity funds may track closely to the performance of the broader large-cap market.”

“Factors may offer a solution for investors looking to enhance the risk-adjusted performance of their large-cap stock allocations,” the Fund Focus added. “We believe that applying factors to equity holdings may lead to long-term outperformance of the broader market. Indeed, it is our opinion that factors such as value, quality and momentum are designed to target specific drivers of return.”

A Multi-Factor Approach

QLC’s name might say quality, but the fund employs a multi-factor strategy. Doing so not only captures the upside in quality, but also momentum and value.

“We believe employing a multi-factor approach to a large-cap equity portfolio may deliver higher risk-adjusted returns to investors,” FlexShares said. “While factors work well in isolation, the combination of the factors—and how they are combined—is also important.”

“NTI selected the quality, momentum and value factors based on their historical long-term return premiums,” FlexShares added. “NTI researchers also determined the process for combining them quite deliberately, drawing on proprietary testing around the metrics in each category that offer the greatest efficacy.”

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