The Quality Factor as a Defensive Tool

QUAL holds 125 stocks and allocates over a quarter of its weight to technology names. The financial services and consumer discretionary sectors combine for almost 28 percent of the ETF’s weight. Technology and financials are among the sectors that often perform well as rates rise.

Related: Fixed Income Channel

“Quality companies, by our definition, are those able to generate and grow free cash flow while maintaining healthy balance sheets,” said BlackRock. “Companies with the fundamental ability—and demonstrated willingness—to increase dividend payouts appear better positioned to offer portfolio protection than those with only high dividend yields.”

Quality stocks can also be less volatile than the broader market. For example, QUAL’s three-year standard deviation of 9.76% is slightly below that of the S&P 500.

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