Finding a Fund with High-Quality U.S. Holdings

Jim Woods

The Fidelity Quality Factor ETF (FQAL) tracks an index of large- and mid-cap U.S. companies with a higher quality profile than the broader market.

FQAL evaluates the top 1,000 stocks (by market cap) on balance sheet measures of quality, scoring them based upon these key factors: free cash flow margin, cash flow stability and return on invested capital. The fund invests at least 80% of its total assets (currently $65.7 million) in these quality holdings.

With FQAL’s strategy, sectors are cap-weighted to provide more market-like exposure. Analysts at Zacks Research give the fund an overall “B” rating for its exposure coverage, volatility and cost. Investors looking to invest in FQAL should do their due diligence to gauge whether it is a good fit for their portfolios.

FQAL’s one-year return is 16.29%, compared with the market’s return of 11.99%. Year to date, FQAL’s return of 4.03% also has beaten the market’s return of 3.70%. The fund has a distribution yield of 1.69% and an expense ratio of 0.29%.

Currently, FQAL is trading around $32-$33, which is within the upper half of its 52-week price range. The chart below shows FQAL’s performance over the last year.

Chart courtesy of Stockcharts.com

FQAL’s top five holdings are Apple (APPL), 4.36%; Microsoft (MSFT), 3.57%; Alphabet (GOOGL), 3.15%; Facebook (FB), 2.31%; and Johnson & Johnson (JNJ), 1.88%. Among the fund’s sectors, its assets are 21% invested in technology, 20% in financials, 14% in consumer services, 12% in health care and 11% in industrials.

For investors who are seeking a fund with high-quality holdings, the Fidelity Quality Factor ETF (FQAL) could be worth checking out closely.

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As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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