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

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The Invesco S&P SmallCap Quality ETF (XSHQ - Free Report) was launched on 04/06/2017, and is a passively managed exchange traded fund designed to offer broad exposure to the Small Cap Blend segment of the US equity market.

The fund is sponsored by Invesco. It has amassed assets over $332.57 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

With more potential comes more risk, and small cap companies, with market capitalization below $2 billion, epitomizes this way of thinking.

Blend ETFs usually hold a mix of growth and value stocks as well as stocks that exhibit both value and growth characteristics.

Costs

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

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 1.12%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Financials sector--about 26.40% of the portfolio. Industrials and Consumer Discretionary round out the top three.

Looking at individual holdings, Mueller Industries Inc (MLI - Free Report) accounts for about 3.60% of total assets, followed by Jackson Financial Inc (JXN - Free Report) and Armstrong World Industries Inc (AWI - Free Report) .

The top 10 holdings account for about 22.19% 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 added roughly 8.40% so far this year and is up about 23.26% in the last one year (as of 09/25/2024). In the past 52-week period, it has traded between $33.63 and $43.47.

The ETF has a beta of 0.96 and standard deviation of 21.62% for the trailing three-year period. With about 119 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 good 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 - Free Report) and the iShares Core S&P Small-Cap ETF (IJR - Free Report) track a similar index. While iShares Russell 2000 ETF has $71.09 billion in assets, iShares Core S&P Small-Cap ETF has $86.29 billion. IWM has an expense ratio of 0.19% and IJR charges 0.06%.

Bottom-Line

Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.

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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