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

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.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

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.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

QUAL is managed by Blackrock, and this fund has amassed over $49.70 billion, which makes it one of the largest ETFs in the Style Box - All Cap Blend. Before fees and expenses, QUAL 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

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.

Annual operating expenses for this ETF are 0.15%, making it one of the cheaper products in the space.

It's 12-month trailing dividend yield comes in at 1.01%.

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.

This ETF has heaviest allocation in the Information Technology sector - about 31.60% of the portfolio. Financials and Consumer Discretionary round out the top three.

Looking at individual holdings, Apple Inc (AAPL) accounts for about 6.28% of total assets, followed by Microsoft Corp (MSFT) and Nvidia Corp (NVDA).

Its top 10 holdings account for approximately 40% of QUAL's total assets under management.

Performance and Risk

The ETF has added roughly 22.60% and was up about 22.60% so far this year and in the past one year (as of 12/31/2024), respectively. QUAL has traded between $144.62 and $186.85 during this last 52-week period.

QUAL has a beta of 1.03 and standard deviation of 18.31% 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 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 $64.43 billion in assets, Vanguard Total Stock Market ETF has $455.61 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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