Evaluating the Invesco S&P SmallCap Quality ETF (XSHQ) Performance

Launched on 04/06/2017, the Invesco S&P SmallCap Quality ETF (XSHQ - Free Report) offers investors an extensive opportunity to invest in the Style Box - Small Cap Blend sector of the market.

Understanding Smart Beta ETFs

Smart beta ETFs differ from traditional products, which typically track market cap weighted indexes. These conventional funds are designed to mimic the performance of entire market segments or the market as a whole. They present an attractive option for investors who trust in market efficiency, as they provide an easy, low-cost way to achieve market average returns.

Conversely, smart beta ETFs cater to those who believe it’s possible to outperform the market through selective stock investment. These funds follow non-cap weighted approaches that seek to identify stocks with a better potential for risk-return outcomes based on specific fundamental factors or combinations thereof.

There are various methodologies within smart beta investing, such as equal-weighting, which is straightforward. Others include fundamental weighting and volatility/momentum-based weighting, although not all have proven to consistently outperform standard weighted approaches.

Overview of the Fund and Index

Managed by Invesco, the XSHQ has gathered over $407.34 million in assets, making it a mid-sized player in the Small Cap Blend category. Its goal is to track the performance of the SmallCap 600 Quality Index before any fees and expenses.

The S&P SmallCap 600 Quality Index includes 120 securities from the S&P SmallCap 600 Index, focusing on those with the highest quality scores based on three fundamental metrics: return on equity, accruals ratio, and financial leverage ratio.

Cost Structure and Financials

Expense ratios play a crucial role in determining an ETF’s overall return. Generally, funds with lower expenses tend to perform better than their higher-cost counterparts over time, assuming other conditions remain unchanged.

The XSHQ's annual operating expenses stand at 0.29%, which is standard compared to similar ETFs. Additionally, it has a 12-month trailing dividend yield of 1.04%.

Sector Distribution and Key Holdings

One of the advantages of ETFs is their diversified exposure, which helps mitigate the risks associated with individual stocks. Therefore, it’s essential to examine a fund’s specific holdings prior to investing. XSHQ provides considerable transparency by disclosing its holdings frequently.

XSHQ's portfolio is predominantly allocated to the Financials sector, which constitutes about 27% of its investments. The top three sectors are completed by Industrials and Consumer Discretionary.

In terms of individual stocks, Mueller Industries Inc (MLI - Free Report) represents approximately 4.14% of the total assets in the fund, followed by Jackson Financial Inc (JXN - Free Report) and Armstrong World Industries Inc (AWI - Free Report). Collectively, the top 10 holdings make up around 23.59% of the fund’s total assets.

Performance Metrics and Risk Assessment

As of the latest year-to-date data, XSHQ has gained about 17% and has risen by approximately 26.20% over the past year. Throughout the last 52 weeks, the fund’s price has fluctuated between $37.15 and $47.59.

XSHQ has demonstrated a beta of 0.98 and a standard deviation of 21.65% over the three-year trailing period, indicating effective diversification across its 117 holdings, which helps lower company-specific risks.

Comparative Alternatives

The Invesco S&P SmallCap Quality ETF presents a viable option for investors aiming to excel in the Small Cap Blend market segment. Nevertheless, other ETFs also warrant consideration.

For instance, the IShares Russell 2000 ETF (IWM - Free Report), which follows the Russell 2000 Index, and the iShares Core S&P Small-Cap ETF (IJR - Free Report), focusing on the S&P SmallCap 600 Index, are both noteworthy alternatives. The iShares Russell 2000 ETF has assets totaling $81.89 billion, while the iShares Core S&P Small-Cap ETF holds $93.89 billion. Notably, IWM charges an expense ratio of 0.19%, while IJR is comparatively lower at 0.06%.

Investors seeking more cost-effective and lower-risk alternatives might find traditional market cap weighted ETFs appealing for matching the Style Box - Small Cap Blend returns.

Final Thoughts

For anyone looking to understand more about this ETF and other investment products, it is recommended to review options that align with personal investment strategies and to stay updated on the latest happenings in the ETF investment landscape.

ETF, Investment, Finance