This article was originally published on ETFTrends.com.
Quality is one investment factor that has been spending considerable time in the spotlight in recent weeks, a trend that is benefiting exchange traded funds such as the iShares Edge MSCI USA Quality Factor ETF (Cboe: QUAL) .
QUAL seeks to track the investment results of the MSCI USA Sector Neutral Quality Index composed of U.S. large- and mid-capitalization stocks exhibiting quality characteristics as identified through racks U.S. large- and mid-capitalization stocks based on quality screens for three fundamental variables: return on equity, earnings variability and debt-to-equity.
Data suggest investors have recently been flocking to QUAL.
“More than $1.3 billion flowed into the iShares Edge MSCI USA Quality Factor ETF, or QUAL, on Tuesday, data compiled by Bloomberg show. That was a record for the fund, which focuses on companies supposed to fare better in downturns, and double the amount added to any other U.S.-listed ETF,” reports Bloomberg.
Calling On 'QUAL' ETF
The quality factor is a point of emphasis for a growing number of strategic beta exchange traded funds. Though there has been debate surrounding defining quality as it pertains to factor-based investing, quality companies and dividend-paying stocks often go hand-in-hand because those dividends are seen as signs of stable earnings and thoughtful management.
Valuing high quality value is particularly important as bull markets enter their waning stages, as some market observers believe the current bull market is doing. In the early stages of bull markets, lower quality companies see their shares soar. However, as the bull matures, investors often exhibit a preference for higher quality fare with more compelling valuations.
“Quality stocks seemed an almost unanimous favorite heading into the year, with firms from State Street Global Advisors to USAA Asset Management and Charles Schwab Investment Management endorsing the strategy,” according to Bloomberg. “With slower economic growth and increased market volatility expected, investors want large companies with healthy balance sheets and cash flow that can better weather any storm.”
The $8.42 billion QUAL holds 125 stocks, none of which exceed weights of 4.34%. The technology, healthcare and financial services sectors combine for almost half the fund's weight.
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