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

The Invesco S&P SmallCap Quality ETF (XSHQ - Free Report) was launched on April 6, 2017. It is designed as a passively managed exchange-traded fund that aims to provide broad exposure to the Small Cap Blend segment of the U.S. equity market.

Invesco sponsors this fund, which has successfully amassed over $396.76 million in assets, positioning it as a mid-sized ETF within the Small Cap Blend category.

Why Choose Small Cap Blend?

Small cap companies, defined as those with market capitalizations below $2 billion, are often viewed as high-potential investments when compared to larger mid and large-cap companies. However, investing in small caps can entail greater risk.

Blend ETFs, such as XSHQ, typically hold a combination of growth and value stocks along with companies that display both value and growth characteristics.

Cost Considerations

When considering an ETF, it's important for investors to examine its expense ratio since lower-cost products can yield better returns than their higher-cost counterparts if other metrics are equal.

XSHQ has an annual operating expense of 0.29%, which aligns with the average in its category.

Additionally, the fund offers a 12-month trailing dividend yield of 1.02%.

Sector Allocation and Major Holdings

Although ETFs typically provide diversified exposure to mitigate single-stock risk, reviewing a fund's specific holdings is crucial before making an investment decision. Fortunately, most ETFs transparently disclose their holdings on a daily basis.

XSHQ predominantly invests in the Financial sector, which makes up approximately 27.20% of the portfolio. The top three sectors also include Industrials and Consumer Discretionary.

The fund's largest holding is Mueller Industries Inc (MLI - Free Report), which constitutes around 4.14% of total assets, followed closely by Jackson Financial Inc (JXN - Free Report) and Armstrong World Industries Inc (AWI - Free Report). Collectively, the top ten holdings represent about 23.59% of the ETF's total assets.

Performance and Risk Factors

This ETF aims to track the S&P SmallCap 600 Quality Index's performance, before accounting for fees and expenses. The index comprises 120 stocks from the S&P SmallCap 600 Index that are deemed to have the highest quality scores, calculated using key metrics such as return on equity, accruals ratio, and financial leverage ratio.

As of November 27, 2024, XSHQ has experienced a gain of approximately 18.98% year-to-date and a significant increase of about 30.03% over the past year. In the last 52 weeks, the ETF's trading range has been between $36.10 and $47.59.

With a beta of 0.96 and a standard deviation of 21.76% over the trailing three-year period, the ETF has a well-diversified portfolio with around 117 holdings, effectively reducing company-specific risk.

Alternative Investment Options

XSHQ carries a Zacks ETF Rank of 3 (Hold), a rating based on expected asset class returns, expense ratios, and momentum, along with other key factors. Therefore, it represents a sound option for those interested in the Small Cap Blend space. Investors may also want to explore other ETF options within this segment.

For instance, the iShares Russell 2000 ETF (IWM - Free Report) and the iShares Core S&P Small-Cap ETF (IJR - Free Report) track similar indices. IWM has significant assets of $79.47 billion, while IJR has $94.47 billion, with IWM charging an expense ratio of 0.19% and IJR at a mere 0.06%.

Conclusion

Passively managed ETFs like XSHQ are becoming increasingly popular among both retail and institutional investors due to their cost-effectiveness, transparency, flexibility, and tax efficiency. They serve as excellent investment vehicles for long-term strategies.

For more information on XSHQ and other ETF options, consider researching products that align with your investment goals and keeping up with the latest developments in the ETF investment landscape.

investment, ETF, small cap