Valuing high quality value is particularly important as bull markets enter their waning stages, as some market observers believe the current bull market is doing. In the early stages of bull markets, lower quality companies see their shares soar. However, as the bull matures, investors often exhibit a preference for higher quality fare with more compelling valuations.
While technology is often associated with the growth and momentum factors, the sector is home to some of the best balance sheets in the U.S. and steady dividend growth, bolstering its quality credibility. As such, technology is QUAL’s largest sector weight at over 23%. Financial services and healthcare stocks combine for almost 29% of the ETF’s weight.
Conversely, QUAL lacks exposure to sectors that are often associated with high debt burdens. For example, high-yielding utilities and telecom names combine for barely more than 5% of the ETF’s weight.
“Since its inception in July 2013, QUAL ETF has generated an average annual return of 12.45%. This is slightly higher than the average annual return of S&P 500’s 11.99%. Its 3-year average annual return of 10.51% is also higher than S&P 500’s 9.27%. As can be seen, a $10,000 invested in July 2013 will grow to about $16,000 in July 2017,” according to Seeking Alpha.
For more on Smart Beta ETFs, visit the Smart Beta Channel home page.