Why You Should Bet On Quality ETFs Now
After a recent series of new highs, Wall Street retreated on doubts over the trade deal that has undermined bullish sentiments and led to risk-off trade once again. This is especially true as the phase one trade deal between Washington and Beijing could slide into next year as Beijing presses for tariff rollbacks. If the trade deal is not reached, President Donald Trump would raise tariffs on Chinese imports with the Dec 15 deadline.
However, monetary easing policies and better-than-expected earnings are providing enough impetus to the stock market. Notably, lower rates have made borrowings cheaper, providing a boost to both investment in new projects and repayment of a higher-rate debt. A spate of better-than-expected data added to the strength. This is especially true as October retail sales have rebounded from a sluggish September and American consumers remain willing to spend, which is good news for domestic economic growth (read: 4 Top-Ranked Cyclical Sector ETFs & Stocks for Q4).
Given solid fundamentals amid trade uncertainty, investors should focus on high-quality investing.
Why Quality Investing?
Quality stocks are rich in value characteristics with healthy balance sheets, high return on capital, low volatility, elevated margins, and a track of stable or rising sales and earnings growth. These products reduce volatility when compared to plain vanilla funds and hold up rather well during market swings. Further, academic research shows that high-quality companies consistently deliver superior risk-adjusted returns than the broader market over the long term.
Given this, we have highlighted five ETFs targeting this niche strategy. Any of these could enjoy smooth trading and generate market-beating returns in a rocky market.
ETF Picks
iShares Edge MSCI USA Quality Factor ETF QUAL
This fund provides exposure to large and mid-cap stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth, and low financial leverage) by tracking the MSCI USA Sector Neutral Quality Index (read: 10 Best Performing Stocks of S&P 500 ETF).
Expense Ratio: 0.15%
AUM: $14.7 billion
Average Daily Volume: 1.1 million shares
YTD Return: 28%
Invesco S&P 500 Quality ETF SPHQ
This fund tracks the S&P 500 Quality Index, a benchmark of S&P 500 stocks that have the highest-quality score based on three fundamental measures — return on equity, accruals ratio and financial leverage ratio.
Expense Ratio: 0.15%
AUM: $1.7 billion
Average Daily Volume: 341,000 shares
YTD Return: 27.1%
Barron's 400 ETF BFOR
This ETF seeks to track the performance of the rules-based and fundamentals-driven Barron’s 400 Index. The benchmark uses the MarketGrader's fundamental analysis to select America’s highest-performing stocks based on growth, valuation, profitability and cash flow.
Expense Ratio: 0.66%
AUM: $144.9 million
Average Daily Volume: 11,000 shares
YTD Return: 16.3%
FlexShares Quality Dividend Index Fund QDF
This ETF follows the Northern Trust Quality Dividend Index and uses a proprietary model that includes factors like profitability, management efficiency and cash flow (read: Top-Ranked ETFs That Crushed the Market in a Month).
Expense Ratio: 0.37%
AUM: $1.7 billion
Average Daily Volume: 91,000 shares
YTD Return: 20.7%
SPDR MSCI USA StrategicFactors ETF QUS
This fund offers exposure to stocks that have a combination of value, low volatility and quality factor strategies. This is done by tracking the MSCI USA Factor Mix A-Series Index.
Expense Ratio: 0.15%
AUM: $601 million
Average Daily Volume: 45,000 shares
YTD Return: 27.3%
Bottom Line
Quality ETFs often provide hedge against market volatility. Adding any of the abovementioned products to one’s long-term portfolio could be a good move given their credit worthiness and soundness.
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SPDR MSCI USA StrategicFactors ETF (QUS): ETF Research Reports
Invesco S&P 500 Quality ETF (SPHQ): ETF Research Reports
BARRONS-400 ETF (BFOR): ETF Research Reports
iShares Edge MSCI USA Quality Factor ETF (QUAL): ETF Research Reports
FlexShares Quality Dividend Index Fund (QDF): ETF Research Reports
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