Given the potential economic headwinds like inflation, ETF investors will want to shore up their portfolios with quality funds that can outpace the major indexes, like the FlexShares US Quality Large Cap Index Fund (QLC ).
Of course, investors will want the best of both worlds, combining quality with S&P 500-beating performance. With that in mind, QLC can be their fund — it’s up close to 22% on the year versus the S&P 500 Value Index’s 20% gain.
QLC seeks investment results that correspond generally to the price and yield performance (before fees and expenses) of the Northern Trust Quality Large Cap Index. The underlying index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to quality, value, and momentum factors relative to a universe of publicly-traded U.S. large-capitalization equity securities.
Looking at the Five-Year Chart
When you stretch the performance of both the fund and index out to five years, the disparity is even more apparent. QLC outpaces the index by about 26%, gaining most of its lead on the fund following last year’s effects of the ongoing pandemic.
“QLC tracks an index of large-cap U.S. companies that scores companies based on quality metrics like profitability, management efficiency and cash flow,” an ETF Database analysis says. “The methodology weeds out the lowest-scoring companies. Top holdings include familiar blue-chip companies like Apple, Microsoft, and Johnson & Johnson.”
QLC’s outperformance compared to the value index can also be attributed to big tech’s dominance over the past year. As the ETF Database analysis mentions, the fund is top-heavy with a who’s who in big tech names that have delivered outsized gains.
The fund employs a factor-based approach that centers on quality, value, and momentum, specifically.
“FlexShares US Quality Large Cap Index Fund (QLC) aims to strengthen investors’ core large-cap holdings with a multi-factor approach focused on quality, value and momentum,” a FlexShares Fund Focus says. “The fund’s underlying index relies on a deliberate process to construct and combine these factors in an effort to take full advantage of the individual and collective benefits of each factor.”
“We believe this rules-based methodology offers distinct advantages to investors who want the potentially stabilizing benefits of large-cap stocks while also including the potential for enhanced performance due to the focus on these three factors,” the Fund Focus adds.
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