We have observed some profit taking in what has become a popular “Smart-Beta” ETF offering from iShares known as QUAL (iShares MSCI USA Quality Factor, Expense Ratio 0.15%).
The fund, which debuted back in July of 2013 and recently celebrated its fourth birthday since launching and is currently rated with 5-stars (the highest possible rank) on Morningstar. In 2017 however, there have been some position trimming to the tune of about $300 million leaving the fund, most of this occurring within the past week or so as volume in the product has surged on in some cases (over 2 million share day seven trading sessions ago) above normal ADV levels of 246,000 shares as well.
As mentioned, QUAL is one of several “Smart-Beta” ETFs that have been popularized over the past few years and undoubtedly has become a success story in short order given the current Morningstar rating coupled with the notable asset levels in the fund north of about $3.48 billion.
iShares literature defines QUAL as delivering “Exposure to large and mid-cap U.S. stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage.” Furthermore, the fund is stated to “track the investment results of an index that measures the performance of U.S. large and mid-capitalization stocks as identified through three fundamental variables: return on equity, earnings variability and debt-to-equity.”
We see one hundred twenty-five individual names within this portfolio and it is interesting to look at the top holdings of the fund in order to get some flavor for which stocks rank the highest according to the various “Quality Factors” that are screened. In the top five weightings we see 1) MO (7.05%), 2) JNJ (5.05%), 3) MSFT (3.95%), 4) AAPL (3.56%), and 5) MMM (3.27%).
QUAL fits within the “All Cap Equity” broad category in that it does have the ability to venture outside of say the mega or large cap space and can own mid-caps as portfolio literature expresses. It presently ranks seventh within this broad category behind some behemoths like the $82 billion VTI (Vanguard Total Stock Market, Expense Ratio 0.04%) and smaller but well-known funds like the $13.4 billion USMV (iShares Edge MSCI Minimum Volatility USA, Expense Ratio 0.15%) and $9.9 billion ITOT (iShares Core S&P Total U.S. Stock Market, Expense Ratio 0.03%).
The iShares MSCI USA Quality Factor ETF (NYSE:QUAL) was trading at $75.63 per share on Monday afternoon, down $0.25 (-0.33%). Year-to-date, QUAL has gained 10.55%, versus a 11.35% rise in the benchmark S&P 500 index during the same period.