Designed to provide broad exposure to the Style Box - All Cap Blend category of the market, the iShares MSCI USA Quality Factor ETF (QUAL) is a smart beta exchange traded fund launched on 07/16/2013.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

The fund is managed by Blackrock, and has been able to amass over $49.10 billion, which makes it one of the largest ETFs in the Style Box - All Cap Blend. QUAL seeks to match the performance of the MSCI USA Sector Neutral Quality Index before fees and expenses.

The MSCI USA Sector Neutral Quality Index is based on a traditional market capitalization-weighted parent index, the MSCI USA Index which includes U.S. large and mid capitalization stocks.

Cost & Other Expenses

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

Operating expenses on an annual basis are 0.15% for this ETF, which makes it one of the cheaper products in the space.

The fund has a 12-month trailing dividend yield of 1%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Information Technology sector - about 31% of the portfolio. Financials and Healthcare round out the top three.

Looking at individual holdings, Apple Inc (AAPL) accounts for about 5.69% of total assets, followed by Nvidia Corp (NVDA) and Microsoft Corp (MSFT).

QUAL's top 10 holdings account for about 39.91% of its total assets under management.

Performance and Risk

So far this year, QUAL has added about 21.30%, and is up about 32.05% in the last one year (as of 08/28/2024). During this past 52-week period, the fund has traded between $127.66 and $177.76.

QUAL has a beta of 1.03 and standard deviation of 18.63% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 129 holdings, it effectively diversifies company-specific risk.

Alternatives

IShares MSCI USA Quality Factor ETF is an excellent option for investors seeking to outperform the Style Box - All Cap Blend segment of the market. There are other ETFs in the space which investors could consider as well.

IShares Core S&P Total U.S. Stock Market ETF (ITOT) tracks S&P Total Market Index and the Vanguard Total Stock Market ETF (VTI) tracks CRSP US Total Market Index. IShares Core S&P Total U.S. Stock Market ETF has $60.64 billion in assets, Vanguard Total Stock Market ETF has $426.21 billion. ITOT has an expense ratio of 0.03% and VTI charges 0.03%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - All Cap Blend.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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iShares MSCI USA Quality Factor ETF (QUAL): ETF Research Reports

Apple Inc. (AAPL) : Free Stock Analysis Report

Microsoft Corporation (MSFT) : Free Stock Analysis Report

NVIDIA Corporation (NVDA) : Free Stock Analysis Report

Vanguard Total Stock Market ETF (VTI): ETF Research Reports

iShares Core S&P Total U.S. Stock Market ETF (ITOT): ETF Research Reports

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