Launched on 12/14/2012, the FlexShares Quality Dividend Defensive ETF (QDEF) is a smart beta exchange traded fund offering broad exposure to the Style Box - All Cap Blend category of the market.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

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

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

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

The fund is managed by Flexshares, and has been able to amass over $403.13 million, which makes it one of the average sized ETFs in the Style Box - All Cap Blend. QDEF seeks to match the performance of the Northern Trust Quality Dividend Defensive Index before fees and expenses.

The Northern Trust Quality Dividend Defensive Index is designed to provide exposure to a high-quality income-oriented portfolio of long-only U.S. equity securities, with an emphasis on long-term capital growth and a targeted overall beta that is generally between 0.5 to 1.0 times that of the Northern Trust 1250 Index that are selected based on expected dividend payment and fundamental factors.

Cost & Other Expenses

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

Operating expenses on an annual basis are 0.37% for QDEF, making it on par with most peer products in the space.

QDEF's 12-month trailing dividend yield is 1.87%.

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.

For QDEF, it has heaviest allocation in the Information Technology sector --about 26.70% of the portfolio --while Healthcare and Industrials round out the top three.

Looking at individual holdings, Apple Inc Common Stock Usd 0.00001 (AAPL) accounts for about 6.08% of total assets, followed by Microsoft Corp Common Stock Usd 0.00000625 (MSFT) and Nvidia Corp Common Stock Usd 0.001 (NVDA).

Its top 10 holdings account for approximately 35.34% of QDEF's total assets under management.

Performance and Risk

The ETF has added about 20.68% and is up about 29.77% so far this year and in the past one year (as of 11/05/2024), respectively. QDEF has traded between $54.89 and $72.52 during this last 52-week period.

QDEF has a beta of 0.90 and standard deviation of 14.35% 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

FlexShares Quality Dividend Defensive 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 $61.55 billion in assets, Vanguard Total Stock Market ETF has $438.07 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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FlexShares Quality Dividend Defensive ETF (QDEF): 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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