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5 Smart Beta Funds That Are … Well, SMART

Smart beta funds are exploding in number and complexity, but only some of them will actually give you positive wiggle

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Smart Beta Funds: iShares MSCI USA Quality Factor ETF (QUAL)

isharesCreated in conjunction with the Arizona State Retirement System, BlackRock’s (BLK) iShares MSCI USA Quality Factor (QUAL) smart beta fund is quickly becoming a winner among investors.

QUAL uses the broad MSCI USA Index as a base and then picks-out stocks that meet “high-quality” metrics. It scores stocks on three main fundamental variables: high return on equity (ROE), stable year-over-year earnings growth and low financial leverage. That creates a portfolio of stocks that currently totals 127, with tech being the largest sector weighting at 36%.

Research shows that high-quality earnings and low debt levels in stocks can consistently deliver better risk-adjusted returns than the broader market over the long haul. By exploiting these factors, QUAL hopes to deliver more oomph while removing some of the volatility and downside risk.

The fund is new and doesn’t have the track record of RSP and PRF, but results have been pretty good so far. Last year, its underlying index managed to post a 33.5% return, slightly beating the S&P 500.

The other kicker for QUAL: Expenses are dirt cheap at just 0.15%.

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