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

Designed to provide broad exposure to the Small Cap Blend segment of the US equity market, the Invesco S&P SmallCap Quality ETF (XSHQ) is a passively managed exchange traded fund launched on 04/06/2017.

The fund is sponsored by Invesco. It has amassed assets over $434.61 million, making it one of the average sized ETFs attempting to match the Small Cap Blend segment of the US equity market.

Why Small Cap Blend

Small cap companies have market capitalization below $2 billion. They usually have higher potential than large and mid cap companies with stocks but higher risk.

Blend ETFs are aptly named, since they tend to hold a mix of growth and value stocks, as well as show characteristics of both kinds of equities.

Costs

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Annual operating expenses for this ETF are 0.29%, putting it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 1.34%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Industrials sector--about 22.80% of the portfolio. Financials and Consumer Discretionary round out the top three.

Looking at individual holdings, Hims & Hers Health Inc (HIMS) accounts for about 3.13% of total assets, followed by Armstrong World Industries Inc (AWI) and Pjt Partners Inc (PJT).

The top 10 holdings account for about 21.67% of total assets under management.

Performance and Risk

XSHQ seeks to match the performance of the SmallCap 600 Quality Index before fees and expenses. The S&P SmallCap 600 Quality Index is composed of 120 securities in the S&P SmallCap 600 Index that have the highest quality score, which is calculated based on the average of three fundamental measures: return on equity, accruals ratio and financial leverage ratio.

The ETF has lost about -6.33% so far this year and is down about -2.74% in the last one year (as of 04/01/2025). In the past 52-week period, it has traded between $37.78 and $47.59.

The ETF has a beta of 0.99 and standard deviation of 21.29% for the trailing three-year period. With about 120 holdings, it effectively diversifies company-specific risk.

Alternatives

Invesco S&P SmallCap Quality ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, XSHQ is a sufficient option for those seeking exposure to the Style Box - Small Cap Blend area of the market. Investors might also want to consider some other ETF options in the space.

The iShares Russell 2000 ETF (IWM) and the iShares Core S&P Small-Cap ETF (IJR) track a similar index. While iShares Russell 2000 ETF has $64.35 billion in assets, iShares Core S&P Small-Cap ETF has $78.57 billion. IWM has an expense ratio of 0.19% and IJR charges 0.06%.

Bottom-Line

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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This article originally published on Zacks Investment Research (zacks.com).

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