A Mutual Fund Alternative that Won’t Break the Bank

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

Usually, what is considered one of the advantages of mutual funds compared to exchange-traded funds (ETFs) is active management.

Many investors prefer the idea that someone is making intelligent, intentional decisions behind the wheel of the money those investors are willing to invest. However, more recently, the concept of the actively managed ETF has risen as a possibility and, in so doing, dealt another blow to mutual funds.

One such actively managed ETF is Alpha Architect U.S. Quantitative Value ETF (QVAL).

This fund invests in U.S. equities based on a number of quantitative metrics, including valuation, competitive advantage and financial strength, basing each of these “screens” on public data. The fund also has a proprietary method of eliminating companies that may be utilizing questionable accounting practices.

The hoped-for result is a portfolio of high-quality companies with metrics indicating they are strong investments. As there are about 50 companies currently held by the fund, it diversifies less than some other ETFs, but the companies selected have clearly been chosen with care.

After some time as an index-tracking fund, this week QVAL switched its strategy back to active management. In the past year, this fund’s performance has been a 19.5% gain, just under the performance of the S&P. There have been times during the last year when its performance beat that of the S&P fairly significantly, but late 2021 was unkind to QVAL. The fund has an expense ratio of 0.49% and a yield of 1.34%.

Chart courtesy of StockCharts.com

Among this fund’s largest holdings are such stalwarts as Kohl’s Corporation (KSS), 2.54%; Magnolia Oil & Gas Corp. (MGY), 2.41%; Nexstar Media Group Inc. (NXST), 2.31%; ManpowerGroup Inc. (MAN), 2.27%; and Dick’s Sporting Goods Inc. (DKS), 2.24%. The top 10 positions fill out 22.8% of QVAL’s investments.

For investors who might be leery of the unthinking nature of index-tracking ETFs, actively managed options like Alpha Architect U.S. Quantitative Value ETF (QVAL) may be an appealing strategy.

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