Fill Gaps in SMID-Cap Exposure With XMHQ and XSHQ

Many investors may be missing out on the growth potential mid- and small-cap companies. The Invesco S&P MidCap Quality ETF (XMHQ B) and the Invesco S&P SmallCap Quality ETF (XSHQ B-) may be a solution for investors to get exposure while potentially taking on less risk.

As investors have increasingly turned to quality ETFs in recent years due to market uncertainty, XSHQ and XMHQ have seen sizable inflows. SMID-cap ETFs XMHQ has seen $2.1 billion in net flows year to date through July 19, while XSHQ has accreted $183 million during the same period.

XMHQ and XSHQ are in the same suite of quality ETFs as the popular $10.2 billion Invesco S&P 500 Quality ETF (SPHQ A-).

SPHQ comprises 100 companies from the S&P 500 that have attractive quality scores. These scores are calculated based on three fundamental measures: return on equity, accruals ratio, and financial leverage ratio. SPHQ includes many mega caps and household names, such as Microsoft (MSFT) and Apple Inc. (AAPL).

On the other hand, XMHQ offers quality mid-cap exposure. The fund does this by tracking an index that includes the 80 securities in the S&P Midcap 400 Index that have the highest quality scores. These scores are calculated using the same proprietary factors as SPHQ. Top names in XMHQ include Williams-Sonoma (WSM) and Carlisle Companies Incorporated (CSL).

Furthermore, XMHQ has grown significant in recent years and now has $5 billion in assets under management.

XSHQ, the youngest and smallest of the three funds, launched in 2017 and has $293 million in assets. The small-cap quality ETF is made up of 120 securities in the S&P SmallCap 600 Index that have the highest quality score, calculated in the same way as SPHQ and XMHQ.

The top two names in XSHQ currently include Abercrombie & Fitch ANF and Mueller Industries MLI.

SPHQ charged 15 basis points, XMHQ charges 25 basis points, and XSHQ charges 30 basis points.

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