Exchange Traded Funds (ETFs)

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

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.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Successful Investing, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.