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?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

The fund is managed by Blackrock. QUAL has been able to amass assets over $50.04 billion, making it one of the largest ETFs in the Style Box - All Cap Blend. QUAL, before fees and expenses, seeks to match the performance of the MSCI USA Sector Neutral Quality Index.

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

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Annual operating expenses for this ETF are 0.15%, making 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

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

Representing 30.50% of the portfolio, the fund has heaviest allocation to the Information Technology sector; Financials and Healthcare round out the top three.

When you look at individual holdings, Nvidia Corp (NVDA) accounts for about 5.93% of the fund's total assets, followed by Apple Inc (AAPL) and Microsoft Corp (MSFT).

QUAL's top 10 holdings account for about 40.07% of its total assets under management.

Performance and Risk

Year-to-date, the iShares MSCI USA Quality Factor ETF return is roughly 23.25% so far, and was up about 42.49% over the last 12 months (as of 10/29/2024). QUAL has traded between $129.26 and $183.19 in this past 52-week period.

QUAL has a beta of 1.03 and standard deviation of 18.50% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 128 holdings, it effectively diversifies company-specific risk.

Alternatives

IShares MSCI USA Quality Factor ETF is a reasonable option for investors seeking to outperform the Style Box - All Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.

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 $62.74 billion in assets, Vanguard Total Stock Market ETF has $446.28 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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