iShares, the largest ETF provider in the world, today launched a
U.S. equities ETF that focuses on quality stocks included in the
broad MSCI USA Index, rounding out a lineup of factor-based
the firm launched earlier this year in conjunction with the Arizona
State Retirement System.
The iShares MSCI USA Quality Factor ETF (NYSEArca:QUAL) invests
in U.S. large- and midcap stocks selected through fundamental
metrics of quality. QUAL costs 0.15 percent, or $15 per $10,000
invested a year.
Tracking the MSCI USA Quality Index-a benchmark based on the
market-capitalization-weighted MSCI USA Index-the fund looks at
three fundamental factors to select quality stocks:high return on
equity; stable year-over-year earnings growth; and low
debt-to-equity, the prospectus said.
In many ways, a "quality" fund was the natural addition to the
group first listed on April 18 that include the iShares MSCI USA
Momentum Factor Index Fund (NYSEArca:MTUM), the iShares MSCI USA
Size Factor ETF (NYSEArca:SIZE) and the iShares MSCI USA Value
Factor ETF (NYSEArca:VLUE), all of which are constructed around the
broad, market-capitalization-weighted MSCI USA Index.
QUAL is also expected to be seeded with Arizona State Retirement
System money, as the previous three funds were, with $100 million
The $31 billion pension fund is the first pension plan to
provide the seed money for low-cost ETFs in a collaboration with
iShares that reflects its desire to express tactical views through
factor rotation in a tradable wrapper.
"The idea was to be able to create some type of an overlay
program to enable us to adjust the factor-risk exposure of our
combined equity set," Dave Underwood, Arizona State assistant CIO
and head of equities, recently told Journal of Indexes' Heather
Bell in an interview. "It's less about alternative beta, although
we do have a strong appreciation of it. It's more that these tools
(i.e., the risk-factor ETFs) are a means to an end."
There's no question that one of the big attractions of factor
investing is that it allows investors who want to express a
tactical view the ability to enhance returns and/or reduce risk.
Demand for these factor-based strategies-or so-called enhanced beta
funds that carve up the investment universe on the basis of
specific factors like momentum, risk and value-are picking up pace
as investors look for diversification at a time when correlations
among assets are rising. Correlation among factors is often quite
As of May 31, some 125 securities comprised the index underlying
the strategy, with consumer discretionary, energy and information
technology companies leading sector allocations, according to the
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