Why You Should Consider the Invesco S&P SmallCap Quality ETF (XSHQ)

The Invesco S&P SmallCap Quality ETF (XSHQ - Free Report) was launched on April 6, 2017. It is a passively managed exchange-traded fund that aims to provide extensive exposure to the Small Cap Blend segment of the U.S. equity market.

Sponsored by Invesco, XSHQ has gathered assets totaling over $396.76 million. This makes it an average-sized ETF in the attempt to match the performance of the Small Cap Blend sector.

Understanding Small Cap Blend

Small cap companies are defined as those with a market capitalization of less than $2 billion. These companies are often seen as having significant growth potential compared to their large and mid-cap counterparts, but they also come with higher risks.

Blend ETFs typically invest in a mixture of growth and value stocks, as well as companies that may exhibit both characteristics.

Cost Considerations

When evaluating an ETF, it's essential for investors to consider the expense ratio. Generally, lower cost ETFs tend to yield better returns than their higher-cost counterparts, assuming other factors are equal.

The annual operating expenses for XSHQ stand at 0.29%, which is comparable to many other products in this category.

This ETF offers a 12-month trailing dividend yield of 1.02%.

Portfolio Breakdown

While ETFs offer diversified exposure that reduces the risks associated with individual stocks, it’s crucial to understand a fund’s holdings before making an investment. Fortunately, most ETFs are transparent and disclose their holdings daily.

XSHQ has its largest allocation in the Financials sector, which makes up about 27.20% of its portfolio. This is followed closely by Industrials and Consumer Discretionary sectors.

In terms of individual holdings, Mueller Industries Inc (MLI - Free Report) represents roughly 4.14% of the total assets, followed by Jackson Financial Inc (JXN - Free Report) and Armstrong World Industries Inc (AWI - Free Report). The top 10 holdings account for approximately 23.59% of the total assets under management.

Analyzing Performance and Risks

The primary objective of XSHQ is to replicate the performance of the S&P SmallCap 600 Quality Index before fees and expenses. This index consists of 120 securities from the S&P SmallCap 600 Index that hold the highest quality rankings, based on three key measures: return on equity, accruals ratio, and financial leverage ratio.

As of November 27, 2024, the ETF has returned around 18.98% year-to-date and has gained about 30.03% in the past year. Over a 52-week timeframe, it has traded within a price range of $36.10 to $47.59.

This ETF features a beta of 0.96 and a standard deviation of 21.76% over the last three years. With approximately 117 holdings, it effectively diversifies company-specific risk.

Alternative Investment Options

The Invesco S&P SmallCap Quality ETF holds a Zacks ETF Rank of 3 (Hold). This ranking is based on aspects such as anticipated asset class returns, expense ratios, and market momentum. Therefore, XSHQ presents itself as a viable option for those looking to invest in the Small Cap Blend segment of the market.

Investors may also want to consider other ETF alternatives. The iShares Russell 2000 ETF (IWM - Free Report) and the iShares Core S&P Small-Cap ETF (IJR - Free Report) both track similar indexes. The iShares Russell 2000 ETF has $79.47 billion in assets, while the iShares Core S&P Small-Cap ETF encompasses $94.47 billion in assets. IWM has an expense ratio of 0.19%, whereas IJR has a lower fee of 0.06%.

Conclusion

Passively managed ETFs like XSHQ are growing in popularity among both retail and institutional investors due to their low costs, transparency, flexibility, and tax efficiency. They serve as excellent investment vehicles for long-term goals.

To explore further about this ETF and other investment options, consider screening products that align with your financial objectives and stay updated on the latest developments within the ETF investment landscape.

ETF, Investing, Finance