Exchange Traded Funds (ETFs)

Separating Real Gold from Fool’s Gold with a Quality ETF

Today is Valentine’s Day. And just like many of us are seeking gifts of only the highest quality to give to that special someone to show how important he or she is in our lives, traders are doing the same with regard to stocks.

The bad news is that, just like in the wider world where, for example, iron pyrite masquerades as fool’s gold, and bad influences hide among the good, it is not always easy to winnow out the wheat of good, durable and reliable stocks from the chaff of unreliable and poor-quality stocks. The good news is that, as you know from reading my weekly columns, we can use the innate talent of human reason that dwells within each of us to carry out this formidable task.

One of the exchange-traded funds (ETFs) that aims to conduct this quest for us is the JPMorgan US Quality Factor ETF (NYSEARCA: JQUA).

Starting from a list of the 1,000 largest publicly-traded American companies, JQUA’s managers use a trifecta of categories — profitability, quality of earnings and solvency — to generate what they call a quality factor. It is this proprietary quality factor that is used to determine the stocks, real estate investment trusts (REITs) and preferred shares in the portfolio, as well as their respective weights.

While the fund’s managers aim to have their holdings reflect the same sector weights as the Russell 1000 Index, JQUA is not focused on either a specific industry or sector. So, investors who are seeking broad-cap exposure to the market can find a kindred spirit in JQUA.

Exclusive ETF Talk: Look Small, Think Big

Some of the stocks currently in the portfolio include NVIDIA Corporation (NASDAQ: NVDA), Meta Platforms Inc. Class A (NASDAQ: META), Broadcom Inc. (NASDAQ: AVGO), Eli Lilly and Company (NYSE: LLY), Alphabet Class A (NASDAQ: GOOG), Microsoft Corporation (NASDAQ: MSFT), Berkshire Hathaway Inc. Class B (NYSE: BRK.B) and Visa Inc. Class A (NYSE: V).

As of Feb. 13, JQUA has been up 3.89% over the past month and 13.73% for the past three months. It is currently up 4.83% year to date.

Chart courtesy of www.stockcharts.com

The fund has an annual expense ratio of 0.12%.

In short, while JQUA does provide an investor with a way to be more selective in terms of the quality of stocks in one’s portfolio, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors should always conduct their due diligence and decide whether the fund is suitable for their investing goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me. You 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 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.