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Invest in Quality ETFs to Tap Current Market Trends
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Wall Street has been on a strong run in recent weeks, driven by optimism over trade talks, easing inflation and momentum in artificial intelligence. The S&P 500 rallied to near record highs above 6,100 but has pulled back in recent sessions amid escalating geopolitical tensions following Iran-Israel strikes.
In such a scenario, investors should focus on high-quality investing. Quality stocks possess a sustainable competitive advantage and demonstrate consistent growth, profitability and operational excellence over time. While there are several funds available in the space, we have chosen the five most popular ETFs targeting the niche strategy. These are iShares MSCI USA Quality Factor ETF (QUAL - Free Report) , Invesco S&P 500 Quality ETF (SPHQ - Free Report) , JPMorgan U.S. Quality Factor ETF (JQUA - Free Report) , FlexShares Quality Dividend Index Fund (QDF - Free Report) and SPDR MSCI USA StrategicFactors ETF (QUS - Free Report) .
President Donald Trump escalated his rhetoric against Iran, calling for its "unconditional surrender." Reports now indicate that the United States is actively weighing military action, as Trump convened his national security team at the White House, stoking fears of a broader regional conflict.
Markets are also grappling with uncertainty surrounding Trump’s trade policies and the outlook for U.S. interest rates. With the deadline to lift the pause on sweeping tariffs fast approaching, U.S. officials have used the G7 summit to press for new trade agreements. RBC has warned that these geopolitical and economic risks could spark a sharp market correction of up to 20%, especially if oil prices surge or expectations for Fed rate cuts fade.
Why Quality ETFs?
Quality ETFs often provide a hedge against market volatility and uncertainty. We have highlighted some solid reasons for investing in quality stocks.
Lower Volatility: Quality stocks tend to exhibit lower volatility compared to the broader market. Their robust business models and financial strength make them less susceptible to market fluctuations, leading to a smoother investment journey.
Defensive Nature: During economic downturns, quality stocks often prove more resilient as they have strong balance sheets and low levels of debt and cash reserves to help them tide over challenging times (read: 5 Defensive ETF Strategies to Follow Amid Israel-Iran Tensions).
Value Preservation: In uncertain or declining market environments, quality stocks can serve as a relative safe haven, preserving capital better than more speculative or lower-quality investments.
Strong Brand and Moat: Quality companies often possess strong brands and competitive moats, which protect them from competition. This can lead to a sustainable competitive advantage, ensuring long-term profitability.
Long-Term Outperformance: Historically, high-quality companies have consistently delivered superior risk-adjusted returns compared with the broader market over the long term. This is because quality companies have strong fundamentals that can weather economic downturns better than their weaker counterparts.
Consistent Profitability: Quality companies tend to have a high return on equity (ROE), return on invested capital (ROIC) and profit margins. These are indicators of a company's ability to generate profit consistently.
Compounding Effect: Betting on quality companies allows investors to benefit from the power of compounding. As these companies consistently grow their earnings and reinvest them, shareholders can achieve exponential returns over time.
Transparency and Governance: High-quality companies usually have transparent financial reporting and sound corporate governance. This reduces the chances of any unwelcome surprises and can potentially reduce investment risk.
Growth Potential: Even if they are established leaders, many quality companies still have significant room for growth, especially if they operate in expanding industries or have opportunities to penetrate new markets.
Dividend Payouts: Quality companies often have a history of paying consistent dividends, providing a source of income for investors. Moreover, since they are typically in a strong financial position, there is a good chance of steady or even increasing dividend payouts in the future.
With an AUM of $51.6 billion, iShares MSCI USA Quality Factor ETF provides exposure to large and mid-cap stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage) by tracking the MSCI USA Sector Neutral Quality Index. QUAL holds 125 stocks in its basket and charges 15 bps in annual fees. It trades in an average daily volume of 1.2 million shares and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Investing Playbook for H2 2025: Quality, AI, and Gold).
Invesco S&P 500 Quality ETF tracks the S&P 500 Quality Index, a benchmark of S&P 500 stocks with the highest-quality score based on three fundamental measures such as return on equity, accruals ratio and financial leverage ratio. Holding 101 stocks in its basket, Invesco S&P 500 Quality ETF has amassed $13.7 billion in its asset base and trades in an average daily volume of 1 million shares. It charges 15 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
JPMorgan U.S. Quality Factor ETF provides domestic equity exposure with a focus on companies with strong quality and profitability characteristics and the potential to enhance returns. It tracks the JP Morgan US Quality Factor Index and holds 273 stocks in its basket. JPMorgan U.S. Quality Factor ETF has amassed $6.2 billion in its asset base and charges 12 bps in fees per year. It trades in an average daily volume of 637,000 shares.
FlexShares Quality Dividend Index Fund (QDF - Free Report)
FlexShares Quality Dividend Index Fund tracks the Northern Trust Quality Dividend Index. It is home to 140 stocks in its basket and charges 37 bps in fees per year. FlexShares Quality Dividend Index Fund has accumulated $1.8 billion in its asset base and trades in an average daily volume of 33,000 shares. It has a Zacks ETF Rank #3 with a Medium risk outlook.
SPDR MSCI USA StrategicFactors ETF offers exposure to stocks that combine low volatility, quality and value factor strategies. This is done by tracking the MSCI USA Factor Mix A-Series Capped Index. SPDR MSCI USA StrategicFactors ETF holds 548 stocks in its basket and charges 15 bps in fees per year from investors. It has attracted $1.5 billion in its asset base and trades in an average daily volume of 31,000 shares. QUS has a Zacks ETF Rank #3 with a Medium risk outlook.
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Invest in Quality ETFs to Tap Current Market Trends
Wall Street has been on a strong run in recent weeks, driven by optimism over trade talks, easing inflation and momentum in artificial intelligence. The S&P 500 rallied to near record highs above 6,100 but has pulled back in recent sessions amid escalating geopolitical tensions following Iran-Israel strikes.
In such a scenario, investors should focus on high-quality investing. Quality stocks possess a sustainable competitive advantage and demonstrate consistent growth, profitability and operational excellence over time. While there are several funds available in the space, we have chosen the five most popular ETFs targeting the niche strategy. These are iShares MSCI USA Quality Factor ETF (QUAL - Free Report) , Invesco S&P 500 Quality ETF (SPHQ - Free Report) , JPMorgan U.S. Quality Factor ETF (JQUA - Free Report) , FlexShares Quality Dividend Index Fund (QDF - Free Report) and SPDR MSCI USA StrategicFactors ETF (QUS - Free Report) .
President Donald Trump escalated his rhetoric against Iran, calling for its "unconditional surrender." Reports now indicate that the United States is actively weighing military action, as Trump convened his national security team at the White House, stoking fears of a broader regional conflict.
Markets are also grappling with uncertainty surrounding Trump’s trade policies and the outlook for U.S. interest rates. With the deadline to lift the pause on sweeping tariffs fast approaching, U.S. officials have used the G7 summit to press for new trade agreements. RBC has warned that these geopolitical and economic risks could spark a sharp market correction of up to 20%, especially if oil prices surge or expectations for Fed rate cuts fade.
Why Quality ETFs?
Quality ETFs often provide a hedge against market volatility and uncertainty. We have highlighted some solid reasons for investing in quality stocks.
Lower Volatility: Quality stocks tend to exhibit lower volatility compared to the broader market. Their robust business models and financial strength make them less susceptible to market fluctuations, leading to a smoother investment journey.
Defensive Nature: During economic downturns, quality stocks often prove more resilient as they have strong balance sheets and low levels of debt and cash reserves to help them tide over challenging times (read: 5 Defensive ETF Strategies to Follow Amid Israel-Iran Tensions).
Value Preservation: In uncertain or declining market environments, quality stocks can serve as a relative safe haven, preserving capital better than more speculative or lower-quality investments.
Strong Brand and Moat: Quality companies often possess strong brands and competitive moats, which protect them from competition. This can lead to a sustainable competitive advantage, ensuring long-term profitability.
Long-Term Outperformance: Historically, high-quality companies have consistently delivered superior risk-adjusted returns compared with the broader market over the long term. This is because quality companies have strong fundamentals that can weather economic downturns better than their weaker counterparts.
Consistent Profitability: Quality companies tend to have a high return on equity (ROE), return on invested capital (ROIC) and profit margins. These are indicators of a company's ability to generate profit consistently.
Compounding Effect: Betting on quality companies allows investors to benefit from the power of compounding. As these companies consistently grow their earnings and reinvest them, shareholders can achieve exponential returns over time.
Transparency and Governance: High-quality companies usually have transparent financial reporting and sound corporate governance. This reduces the chances of any unwelcome surprises and can potentially reduce investment risk.
Growth Potential: Even if they are established leaders, many quality companies still have significant room for growth, especially if they operate in expanding industries or have opportunities to penetrate new markets.
Dividend Payouts: Quality companies often have a history of paying consistent dividends, providing a source of income for investors. Moreover, since they are typically in a strong financial position, there is a good chance of steady or even increasing dividend payouts in the future.
ETFs to Invest
iShares MSCI USA Quality Factor ETF (QUAL - Free Report)
With an AUM of $51.6 billion, iShares MSCI USA Quality Factor ETF provides exposure to large and mid-cap stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage) by tracking the MSCI USA Sector Neutral Quality Index. QUAL holds 125 stocks in its basket and charges 15 bps in annual fees. It trades in an average daily volume of 1.2 million shares and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Investing Playbook for H2 2025: Quality, AI, and Gold).
Invesco S&P 500 Quality ETF (SPHQ - Free Report)
Invesco S&P 500 Quality ETF tracks the S&P 500 Quality Index, a benchmark of S&P 500 stocks with the highest-quality score based on three fundamental measures such as return on equity, accruals ratio and financial leverage ratio. Holding 101 stocks in its basket, Invesco S&P 500 Quality ETF has amassed $13.7 billion in its asset base and trades in an average daily volume of 1 million shares. It charges 15 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
JPMorgan U.S. Quality Factor ETF (JQUA - Free Report)
JPMorgan U.S. Quality Factor ETF provides domestic equity exposure with a focus on companies with strong quality and profitability characteristics and the potential to enhance returns. It tracks the JP Morgan US Quality Factor Index and holds 273 stocks in its basket. JPMorgan U.S. Quality Factor ETF has amassed $6.2 billion in its asset base and charges 12 bps in fees per year. It trades in an average daily volume of 637,000 shares.
FlexShares Quality Dividend Index Fund (QDF - Free Report)
FlexShares Quality Dividend Index Fund tracks the Northern Trust Quality Dividend Index. It is home to 140 stocks in its basket and charges 37 bps in fees per year. FlexShares Quality Dividend Index Fund has accumulated $1.8 billion in its asset base and trades in an average daily volume of 33,000 shares. It has a Zacks ETF Rank #3 with a Medium risk outlook.
SPDR MSCI USA StrategicFactors ETF (QUS - Free Report)
SPDR MSCI USA StrategicFactors ETF offers exposure to stocks that combine low volatility, quality and value factor strategies. This is done by tracking the MSCI USA Factor Mix A-Series Capped Index. SPDR MSCI USA StrategicFactors ETF holds 548 stocks in its basket and charges 15 bps in fees per year from investors. It has attracted $1.5 billion in its asset base and trades in an average daily volume of 31,000 shares. QUS has a Zacks ETF Rank #3 with a Medium risk outlook.