Investor Interest Rising in “QUAL” ETF as Fund Sees Higher Inflows

As the extended bull market continues to mature, investors are getting more strategic with their capital allocations, making the quality factor a stand-out focus that could propel itself though 2020. In particular, the investor interest in quality can be seen via the iShares Edge MSCI USA Quality Factor ETF (BATS: QUAL).

As the uncertainty of a U.S.-China trade deal was settling in, investors may have been looking to the quality factor as a safe haven against a potential market downturn. However, now that appears a “phase one” deal between the two nations is in place, it remain to be seen how QUAL reacts.

For now, the numbers have largely positive.

“Looking today at week-over-week shares outstanding changes among the universe of ETFs covered at ETF Channel, one standout is the iShares Edge MSCI USA Quality Factor ETF (Symbol: QUAL) where we have detected an approximate $138.2 million dollar inflow — that’s a 0.9% increase week over week in outstanding units (from 154,700,000 to 156,100,000),” a Nasdaq report noted. “Among the largest underlying components of QUAL, in trading today Johnson & Johnson (Symbol: JNJ) is up about 1.1%, PepsiCo Inc (Symbol: PEP) is up about 0.7%, and 3M Co (Symbol: MMM) is up by about 0.2%.”

The iShares Edge MSCI USA Quality Factor ETF seeks to track the investment results of an index that measures the performance of U.S. large- and mid-capitalization stocks as identified through three fundamental variables: return on equity, earnings variability and debt-to-equity.

Investor reasons to use QUAL:

  • Exposure to large- and mid-cap U.S. stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage)
  • Index-based access to a specific factor which has historically driven a significant part of companies’ risk and return1
  • Use to help manage exposure and risk within a stock allocation

With a low expense ratio of just 0.15%, QUAL has been a cost-efficient gainer with a 30.75% return year-to-date according to Morningstar’s performance figures.

Quality Options in the ETF World

Another fund to consider is the JPMorgan U.S. Quality Factor ETF (NYSEArca: JQUA). JQUA seeks investment results that closely correspond to the performance of the JP Morgan US Quality Factor Index. The fund will invest at least 80% of its assets in securities included in the underlying index. “Assets” means net assets, plus the amount of borrowing for investment purposes. The underlying index is comprised of U.S. equity securities selected to represent quality factor characteristics.

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