Of all the factors, quality has been rewarding investors the most in 2019, particularly during a rough summer patch where U.S.-China trade wars and inverted yield curves were causing heavy volatility in U.S. equities.
In particular, the iShares Edge MSCI USA Quality Factor ETF (BATS: QUAL) has been a stellar performer–up 30% YTD according to Morningstar with paltry expense ratio of just 0.15%
QUAL seeks to track the investment results of the MSCI USA Sector Neutral Quality Index composed of U.S. large- and mid-capitalization stocks with quality characteristics as identified through certain fundamental metrics. The fund generally will invest at least 90% of its assets in the component securities of the underlying index and may invest up to 10% of its assets in certain futures, options and swap contracts, cash and cash equivalents.
- 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 return
- Use to help manage exposure and risk within a stock allocation
The fund’s top 10 holdings as of Nov. 29:
| JNJ | JOHNSON & JOHNSON | Health Care | 3.89 |
| PEP | PEPSICO INC | Consumer Staples | 3.74 |
| FB | FACEBOOK CLASS A INC | Communication | 3.54 |
| MSFT | MICROSOFT CORP | Information Technology | 3.35 |
| AAPL | APPLE INC | Information Technology | 3.33 |
| MA | MASTERCARD INC CLASS A | Information Technology | 3.14 |
| V | VISA INC CLASS A | Information Technology | 2.77 |
| MMM | 3M | Industrials | 2.76 |
| NKE | NIKE INC CLASS B | Consumer Discretionary | 2.58 |
| DIS | WALT DISNEY | Communication | 2.43 |
Other quality-focused funds to look at:
- JPMorgan U.S. Quality Factor ETF (NYSEArca: 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.
- Invesco S&P 500 Quality ETF (NYSEArca: SPHQ): seeks to track the investment results of the S&P 500 Quality Index. In selecting constituent securities for the underlying index, the index provider calculates the quality score of each security in the S&P 500 Index, then selects the 100 stocks with the highest quality score for inclusion in the underlying index.
- WisdomTree U.S. SmallCap Quality Dividend Growth Fund (NasdaqGM: DGRS): seeks to track the price and yield performance of the WisdomTree U.S. SmallCap Quality Dividend Growth Index. The index is a fundamentally weighted index that consists of the small-capitalization segment of dividend-paying U.S. common stocks with growth characteristics.
For more market trends, visit ETF Trends.