Evaluating the Invesco S&P SmallCap Quality ETF (XSHQ): A Current Perspective

Launched on April 6, 2017, the Invesco S&P SmallCap Quality ETF (XSHQ - Free Report) is a smart beta ETF that gives investors access to the Small Cap Blend market segment.

Understanding Smart Beta ETFs

Smart beta ETFs differ from traditional ETFs, which typically follow market cap-weighted indexes designed to reflect general market performance or specific segments. These traditional funds are often favored by investors who trust in market efficiency and look for a cost-effective method of matching market returns.

In contrast, smart beta ETFs are sought after by those who believe they can outperform the market through strategic stock selection. These funds follow non-cap weighted indexes, aiming for risk-return profiles driven by specific fundamental characteristics.

Investors can choose from various methodologies, such as equal-weighting, fundamental weighting, and volatility/momentum strategies. However, the success of these different approaches varies.

Overview of XSHQ and Its Management

The Invesco S&P SmallCap Quality ETF is managed by Invesco and has accumulated over $407 million in assets, positioning it as a medium-sized ETF within the Small Cap Blend category. The ETF aims to replicate the performance of the SmallCap 600 Quality Index, which includes top-quality stocks based on criteria like return on equity and financial leverage.

Expense Structure

When evaluating an ETF, expense ratios are crucial since they can impact long-term returns. XSHQ has an annual operating expense of 0.29%, which aligns with many similar ETFs. Additionally, it offers a rolling 12-month dividend yield of 1.04%.

Sector Allocation and Key Holdings

Diversification is a key benefit of ETFs, but it's vital to review the actual holdings before investing. For XSHQ, the largest allocation is in the Financials sector, accounting for about 27% of the portfolio. The second and third greatest allocations fall in the Industrials and Consumer Discretionary sectors, respectively.

Among its top holdings, Mueller Industries Inc (MLI - Free Report) represents approximately 4.14% of total assets, followed by Jackson Financial Inc (JXN - Free Report) and Armstrong World Industries Inc (AWI - Free Report). The top ten holdings together make up around 23.59% of the fund's assets.

Performance Metrics and Risk Assessment

This year, XSHQ has demonstrated strong performance, gaining approximately 17%, and it saw a yearly increase of about 26.20% as of December 6, 2024. Throughout the past year, the ETF traded within a range of $37.15 to $47.59.

With a beta of 0.98 and a standard deviation of 21.65% over the past three years, XSHQ effectively mitigates company-specific risks through its 117 holdings.

Exploring Options Beyond XSHQ

While the Invesco S&P SmallCap Quality ETF is a viable choice for investors targeting the Small Cap Blend sector, several alternatives are available. Options include the iShares Russell 2000 ETF (IWM - Free Report), which tracks the Russell 2000 Index, and the iShares Core S&P Small-Cap ETF (IJR - Free Report), following the S&P SmallCap 600 Index. IWM manages $81.89 billion in assets, while IJR has $93.89 billion, with respective expense ratios of 0.19% and 0.06%.

Investors looking for less costly and lower-risk alternatives might consider traditional market-cap-weighted ETFs that aim to mirror the Style Box - Small Cap Blend segment’s returns.

Conclusion

For more insights on various ETFs, including the Invesco S&P SmallCap Quality ETF, investors are encouraged to research products that align with their investment goals and stay informed on the latest trends in the ETF marketplace.

ETF, Investment, Finance