Launched on 04/06/2017, the Invesco S&P SmallCap Quality ETF (XSHQ) is a smart beta exchange traded fund offering broad exposure to the Style Box - Small Cap Blend category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
The fund is managed by Invesco, and has been able to amass over $387.22 million, which makes it one of the average sized ETFs in the Style Box - Small Cap Blend. This particular fund 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.
Cost & Other Expenses
For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.
Annual operating expenses for XSHQ are 0.29%, which makes it on par with most peer products in the space.
XSHQ's 12-month trailing dividend yield is 1.50%.
Sector Exposure and Top Holdings
It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Industrials sector - about 22.60% 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).
Its top 10 holdings account for approximately 21.67% of XSHQ's total assets under management.
Performance and Risk
The ETF has lost about -16.43% so far this year and is down about -11.55% in the last one year (as of 04/08/2025). In the past 52-week period, it has traded between $35.24 and $47.59.
XSHQ has a beta of 0.96 and standard deviation of 21.66% for the trailing three-year period. With about 120 holdings, it effectively diversifies company-specific risk.
Alternatives
Invesco S&P SmallCap Quality ETF is a reasonable option for investors seeking to outperform the Style Box - Small Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Russell 2000 ETF (IWM) tracks Russell 2000 Index and the iShares Core S&P Small-Cap ETF (IJR) tracks S&P SmallCap 600 Index. IShares Russell 2000 ETF has $56.20 billion in assets, iShares Core S&P Small-Cap ETF has $69.66 billion. IWM has an expense ratio of 0.19% and IJR charges 0.06%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Small Cap Blend.
Bottom Line
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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Invesco S&P SmallCap Quality ETF (XSHQ): ETF Research Reports Armstrong World Industries, Inc. (AWI): Free Stock Analysis Report iShares Russell 2000 ETF (IWM): ETF Research Reports PJT Partners Inc. (PJT): Free Stock Analysis Report iShares Core S&P Small-Cap ETF (IJR): ETF Research Reports Hims & Hers Health, Inc. (HIMS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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