Should Invesco S&P SmallCap Quality ETF (XSHQ) Be on Your Investing Radar?

The Invesco S&P SmallCap Quality ETF (XSHQ - Free Report) made its debut on April 6, 2017. This fund is passively managed and aims to provide extensive exposure to the Small Cap Blend segment of the U.S. equity market.

Sponsored by Invesco, the ETF has gathered assets totaling over $396.76 million, positioning it as a fund of average size within the Small Cap Blend sector.

Understanding Small Cap Blend

Small cap companies, defined as those with a market capitalization under $2 billion, are often seen as having higher growth potential compared to their larger counterparts. However, investing in these smaller companies can also carry more risk.

A blend ETF typically includes a mix of growth and value stocks, and may contain stocks that exhibit both characteristics.

Cost Considerations

When investing, it is crucial for investors to consider an ETF's expense ratio. Generally, lower-cost funds tend to yield better performance than those that are more expensive, assuming all other factors are equal.

The Invesco S&P SmallCap Quality ETF has an annual operating expense ratio of 0.29%, which is competitive when compared with similar ETFs.

Additionally, it offers a 12-month trailing dividend yield of 1.02% for investors seeking income from their investments.

Sector Allocation and Top Holdings

While ETFs are designed to provide diversified exposure, analyzing a fund's holdings is still critical before making an investment decision. Most ETFs are transparent and provide holdings information on a daily basis.

The Invesco S&P SmallCap Quality ETF has a significant allocation of approximately 27.20% in the Financials sector, followed by substantial investments in Industrials and Consumer Discretionary sectors.

The ETF's top individual holding is Mueller Industries Inc (MLI - Free Report), which represents about 4.14% of the total assets. Other significant holdings include Jackson Financial Inc (JXN - Free Report) and Armstrong World Industries Inc (AWI - Free Report).

The top 10 holdings collectively account for around 23.59% of the fund's total assets.

Performance and Risk Assessment

The goal of XSHQ is to replicate the performance of the SmallCap 600 Quality Index before accounting for fees and expenses. This Index comprises 120 securities selected from the S&P SmallCap 600 Index that score highest on quality metrics, which are based on factors like return on equity, accruals ratio, and financial leverage ratio.

This ETF achieved an impressive growth of about 18.98% in the current year and has increased by approximately 30.03% over the past year, as of November 27, 2024. During the last 52 weeks, its trading range has been between $36.10 and $47.59.

In terms of risk, the ETF has a beta of 0.96 and a standard deviation of 21.76% over the trailing three-year period. With around 117 holdings, it effectively reduces company-specific risk exposure.

Potential Alternatives

The Invesco S&P SmallCap Quality ETF holds a Zacks ETF Rank of 3 (Hold). This ranking is based on several factors including anticipated asset class returns, expense ratios, and overall momentum. Therefore, XSHQ represents a solid choice for investors interested in the Small Cap Blend area of the market.

Investors may also explore other ETF options like the iShares Russell 2000 ETF (IWM - Free Report) and the iShares Core S&P Small-Cap ETF (IJR - Free Report). While iWM has approximately $79.47 billion in assets under management, IJR manages around $94.47 billion. The iShares Russell 2000 ETF charges an expense ratio of 0.19%, whereas iShares Core S&P Small-Cap ETF has a lower fee of 0.06%.

Conclusion

Passively managed ETFs like XSHQ are becoming increasingly favored by both retail and institutional investors due to their affordability, transparency, flexible trading options, and tax efficiency. They serve as excellent investment vehicles for those with a long-term perspective.

For further insights into this ETF and other similar investment products, it’s advisable to research options that align with your investment goals and to stay informed about the latest trends in the ETF market.

ETF, Investment, Finance