Figuratively speaking, most investors strive to invest in quality funds. And with today’s launch of four new factor-based exchange-traded funds from Market Vectors, they can invest in funds that literally have quality written on their nameplate.
The passel of new funds from Market Vectors, which are sponsored by Van Eck Global, comprises the Market Vectors MSCI International Quality ETF (QXUS), Market Vectors MSCI Emerging Markets Quality ETF (QEM), Market Vectors MSCI International Quality Dividend ETF (QDXU) and Market Vectors MSCI Emerging Markets Quality Dividend ETF (QDEM).
QXUS tracks the MSCI ACWI ex USA Quality index and QEM tracks the MSCI Emerging Markets Quality index. According the MSCI, both indexes are screened for historically high return on equity, stable annual earnings growth and low financial leverage.
“Our research suggests that the quality growth companies have high ROE, below-average financial leverage and stable earnings that are uncorrelated with the broad business cycle and may provide diversification benefits in portfolio allocation,” Diana Tidd, managing director and head of the MSCI Index Business in the Americas, said in a press release.
As the names imply with the other two funds, QDXU and QDEM both have a dividend focus. The former tracks the MSCI ACWI ex USA High Dividend Yield index and the latter tracks the MSCI Emerging Markets High Dividend Yield index.
MSCI says its high-dividend yield-focused indexes contain quality growth companies with a history of providing sustainable and consistent dividend payouts.
A growing number of mutual funds and ETFs employ factor-based allocation strategies that weight portfolio holdings based on a specific factor such as equal-weighting, revenue growth or, in the case of these Market Vectors funds, perceived quality.
Adherents of traditional passive, market cap-based indexes say factor-based strategies are really a form of active investing disguised as a passive index. But investors are always looking the next thing, and product providers are always looking to sell the next thing. That, combined with the fact that some of these strategies have been winners so far, explains why factor-based investing has grown in popularity.
And now Market Vectors has joined the party. “Quality as an investment factor has historically outperformed broad international and emerging markets equities with relatively lower volatility over long time periods,” Amrita Bagaria, Market Vectors’ international equity ETF product manager, said in a press release. “But until now, a quality-focused, factor-based approach has usually been accessible only through active strategies.”
QXUS and QDXU both have net expense ratios of 0.45 percent, and QEM and QDEM both have net expense ratios of 0.50 percent.