The Invesco S&P SmallCap Quality ETF (XSHQ) was launched on 04/06/2017, and is a smart beta exchange traded fund designed to offer broad exposure to the Style Box - Small Cap Blend category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
The fund is managed by Invesco, and has been able to amass over $331.20 million, which makes it one of the average sized ETFs in the Style Box - Small Cap Blend. XSHQ, before fees and expenses, seeks to match the performance of the SmallCap 600 Quality Index.
The S&P SmallCap 600 Quality Index is composed of 120 securities in the S&P SmallCap 600 Index that have the highest quality score, which is calculated based on the average of three fundamental measures: return on equity, accruals ratio and financial leverage ratio.
Cost & Other Expenses
Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.
Operating expenses on an annual basis are 0.29% for this ETF, which makes it on par with most peer products in the space.
XSHQ's 12-month trailing dividend yield is 1.12%.
Sector Exposure and Top Holdings
It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
Representing 25.70% of the portfolio, the fund has heaviest allocation to the Financials sector; Industrials and Consumer Discretionary round out the top three.
Looking at individual holdings, Mueller Industries Inc (MLI) accounts for about 3.60% of total assets, followed by Jackson Financial Inc (JXN) and Armstrong World Industries Inc (AWI).
The top 10 holdings account for about 22.19% of total assets under management.
Performance and Risk
The ETF has added about 8.10% and it's up approximately 22.71% so far this year and in the past one year (as of 10/03/2024), respectively. XSHQ has traded between $33.63 and $43.47 during this last 52-week period.
The fund has a beta of 0.96 and standard deviation of 21.54% for the trailing three-year period. With about 119 holdings, it effectively diversifies company-specific risk.
Alternatives
Invesco S&P SmallCap Quality ETF is a reasonable option for investors seeking to outperform the Style Box - Small Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Russell 2000 ETF (IWM) tracks Russell 2000 Index and the iShares Core S&P Small-Cap ETF (IJR) tracks S&P SmallCap 600 Index. IShares Russell 2000 ETF has $68.50 billion in assets, iShares Core S&P Small-Cap ETF has $84.63 billion. IWM has an expense ratio of 0.19% and IJR charges 0.06%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Small Cap Blend.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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Get it free >>Invesco S&P SmallCap Quality ETF (XSHQ): ETF Research Reports
Armstrong World Industries, Inc. (AWI) : Free Stock Analysis Report
Mueller Industries, Inc. (MLI) : Free Stock Analysis Report
iShares Russell 2000 ETF (IWM): ETF Research Reports
iShares Core S&P Small-Cap ETF (IJR): ETF Research Reports
Jackson Financial Inc. (JXN) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
