As investor euphoria over equities scaling new highs and bullish price action remain the dominant theme on Wall Street, iShares has moved in fast to take advantage of market sentiment.
The exchange-traded products arm of BlackRock Inc. has launched a US equities-ETF that rounds out the factor-based funds the firm launched earlier this year and adds to its impressive portfolio of nearly 300 ETPs.
The iShares MSCI USA Quality Factor ETF (QUAL) tracks the iShares MSCI USA Quality Index, which actually is a twist on the existing broader MSCI USA Index. The MSCI Quality Index is comprised of large and mid-cap stocks, and the new fund takes a factor-based approach to trim down the eligible securities universe. It employs three metrics of quality: stable year-over-year earnings growth, high return on equity and low overall debt level. Empirical data shows correlation among factors is relatively low.
The underlying benchmark includes about 125 US large and mid-cap securities as May 31, with a bias towards information technology, energy and consumer discretionary sectors. QUAL’s top holdings include Fortune-100 companies like Microsoft, Exxon Mobil, Google, Chevron, Apple, IBM, Oracle and Home Depot.
The new fund joins the lineup of three factor ETFs that iShares launched in April this year. The MSCI USA Size Factor ETF (SIZE), the MSCI USA Value Factor ETF (VLUE) and the MSCI USA Momentum Factor ETF (MTUM) provide investors index-based access to a specific factor and all are constructed around the broad-based, market-cap-weighted MSCI USA Index.
Importance of these factor-based strategies, or the so-called enhanced-beta products, have increased in recent times as investors continue to cast their nets wider in search of securities that will reduce correlations among various asset classes in their portfolios.
All the four ETFs are seeded with $100 million each by the $31 billion-strong Arizona State Retirement System. The pension fund is the first retirement plan in the US that has collaborated with iShares in order to exploit factor rotation through tactical asset allocation.
QUAL has an annual expense ratio of 0.15 percent.
Disclosure: No holdings
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