This article was originally published on ETFTrends.com.
DWS Investments launched a quality-focused ETF on Thursday that seeks out high quality companies that are not overly priced to help investors gain exposure to potential value plays in the market.
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The Xtrackers Russell 1000 US QARP ETF (NYSEArca: QARP) has a 0.19% expense ratio.
The Xtrackers Russell 1000 US QARP ETF will try to reflect the performance of the Russell 1000 2Qual/Val 5% Capped Factor Index, which is comprised of large-cap equity names selected based on quality and value factors, according to a prospectus sheet.
The smart beta ETF tries to identify companies that have strong quality scores relative to their peers while also looking at the value scores of the securities to avoid companies that are potentially over-priced. The quality focus also seeks to avoid so-called value traps, or companies with favorable valuation metrics as they approach bankruptcy, that a pure value exposure would likely fall into.
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The quality factor is calculated from a company’s leverage and profitability and identifies stocks that are characterized by low debt, stable earnings growth, and other “quality” metrics, with the expectation that these will provide the possibility of excess returns.
How Value Factor is Calculated
The value factor is based on a company’s valuation ratios and identifies stocks that have low prices relative to their fundamental value and that provide the possibility of excess returns.
“Quality investing aims to target companies that demonstrate strong and persistent profitability, stability or growth in earnings, and a strong financial foundation. In times of market volatility spikes, quality factor strategies have historically behaved defensively, which may provide opportunities for strong outperformance,” Fiona Bassett, Global Co-Head of Passive Asset Management, said in a note. “Factor strategies have historically allowed investors to generate alpha and diversify their portfolios, while managing for downside risk. QARP is designed to provide investors exposure to quality companies at a reasonable price.”
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QARP sector weights include information technology 25.8%, industrials 17.0%, healthcare 16.0%, consumer discretionary 15.6%, consumer staples 9.3%, financials 4.4%, telecom services 3.7%, energy 2.6%, materials 2.5% and real estate 2.3%.
Top component holdings include Apple 5.0%, Boeing 3.7%, Johnson & Johnson 3.7%, Intel Corp 2.5% and Wal-Mart 2.3.%.
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