This year has shaped out to be quite kind for equity investors as bullish price action remains the dominant theme on Wall Street. iShares is looking to take advantage of all the euphoria with their latest product launch aimed at investors in search of a “core” holding to fill out their portfolio’s equity component; the latest addition to the issuer’s towering lineup of nearly 300 exchange-traded products is the MSCI USA Quality Factor ETF (QUAL) .

What Is “Quality”?

The newly launched QUAL is actually a twist on an existing benchmark, the broad MSCI USA Index. The iShares fund takes a factor-based approach in trimming down the starting universe by employing a series of fundamental metrics screens to narrow down only the highest-quality of companies. The methodology behind QUAL is based on three metrics of quality: high return on equity, stable year-over-year EPS growth, as well as low debt-to-equity .

The result is a portfolio comprised of roughly 125 U.S. large and mid-cap securities with a tilt towards the consumer discretionary, energy, and information technology sectors. QUAL is expected to be seeded with Arizona State Retirement System funds, similar to the three other factor-based ETFs that the firm rolled out this past April which are also based around the MSCI USA Index. QUAL is also expected to charge 0.15% in annual expense fees, similar to the previously mentioned sister ETFs which are:

  • MSCI USA Momentum Factor ETF : This ETF picks the securities with the highest momentum characteristics.
  • MSCI USA Size Factor : This ETF rebalances in a way that stocks with relatively smaller average market capitalization and lower risk weightings based on the index provider’s methodology constitute a higher percentage of the underlying index.
  • MSCI USA Value Factor : This ETF seeks out securities which are undervalued relative to their peers .

Meet The Competition

QUAL will be joining one of the most competitive segments within the ETF universe, the All Cap Equities ETFdb Category, which currently consists of 45 funds with an average expense ratio of 0.47%. While QUAL certainly has an upper hand when it comes to expenses, the fund will still face very stiff competition from more established products in the space, including these top three bellwethers:

  • Vanguard Total Stock Market ETF with nearly $33 billion in assets under management
  • iShares Russell 3000 Index Fund with over $4.5 billion in AUM
  • iShares MSCI USA Minimum Volatility Index Fund with over $3 billion in AUM

USMV’s success is encouraging for QUAL given the proven track record which suggests that there is in fact significant investor demand for factor-based products.

Follow me on Twitter @SBojinov

Disclosure: No positions at time of writing.


Related Articles
  1. Economics

    The Biggest Oil Producers in Latin America

    Find out which countries produce the most oil in Latin America, and learn about some of the biggest oil companies operating in each country.
  2. Professionals

    Are ETFs a Good Fit for 401(k) Plans?

    The popularity of ETFs among investors and advisors continues to grow. But are they a good fit for 401(k) plans?
  3. Mutual Funds & ETFs

    The Top Vanguard Emerging Market ETF

    Learn why growth investors should consider investing in VWO's portfolio of emerging market stocks.
  4. Investing Basics

    How to Pick the Best Muni Bonds and Muni Bond ETFs

    Municipal bonds are a good addition to a diversified portfolio as long as you choose correctly based on population and local economic trends.
  5. Mutual Funds & ETFs

    Top 3 Emerging Markets Bond Mutual Funds

    Discover detailed analysis of the top three mutual funds offering exposure to the emerging markets bonds, and learn about the suitability of these funds.
  6. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  7. Investing Basics

    Top Tips for Diversifying with Exotic Currencies

    Is there an opportunity in exotic currencies right now, or are you safer sticking to the major ones?
  8. Mutual Funds & ETFs

    The 3 Biggest Mutual Fund Companies in the US

    Compare and contrast the rise of America's big three institutional asset managers: BlackRock Funds, The Vanguard Group and State Street Global Advisors.
  9. Professionals

    5 Top-Rated Funds for Your Retirement Portfolio

    Mutual funds are a good choice for emotional investors. Here are five popular funds to consider.
  10. Stock Analysis

    The 6 Biggest Russian Energy Companies

    Learn about the top energy companies in Russia, a country that holds some of the largest reserves of oil, natural gas and coal in the world.
  1. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  2. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
  5. Is there a situation in which wash trading is legal?

    Wash trading, the intentional practice of manipulating a stock's activity level to deceive other investors, is not a legal ... Read Full Answer >>
  6. Are there leveraged ETFs that follow the retail sector?

    There are many exchange-traded funds (ETFs) that track the retail sector or elements of the retail sector, and some of those ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!