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The FlexShares US Quality Large Cap ETF (QLC) was launched on 09/23/2015, and is a smart beta exchange traded fund designed to offer broad exposure to the Style Box - Large Cap Blend category of the market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

Managed by Flexshares, QLC has amassed assets over $200.34 million, making it one of the average sized ETFs in the Style Box - Large Cap Blend. Before fees and expenses, this particular fund seeks to match the performance of the Northern Trust Quality Large Cap Index.

The Northern Trust Quality Large Cap Index is designed to measure the performance of a universe of large capitalization securities which demonstrate characteristics of better quality, attractive valuation and positive momentum.

Cost & Other Expenses

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.25%.

QLC's 12-month trailing dividend yield is 1.11%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

For QLC, it has heaviest allocation in the Information Technology sector --about 31.20% of the portfolio --while Financials and Healthcare round out the top three.

Taking into account individual holdings, Apple Inc Common Stock Usd 0.00001 (AAPL) accounts for about 6.80% of the fund's total assets, followed by Microsoft Corp Common Stock Usd 0.00000625 (MSFT) and Nvidia Corp Common Stock Usd 0.001 (NVDA).

Its top 10 holdings account for approximately 32.33% of QLC's total assets under management.

Performance and Risk

Year-to-date, the FlexShares US Quality Large Cap ETF has gained about 10.83% so far, and is up roughly 30.88% over the last 12 months (as of 05/10/2024). QLC has traded between $45.32 and $58.88 in this past 52-week period.

QLC has a beta of 1.01 and standard deviation of 17.09% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 177 holdings, it effectively diversifies company-specific risk.

Alternatives

FlexShares US Quality Large Cap ETF is a reasonable option for investors seeking to outperform the Style Box - Large Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Core S&P 500 ETF (IVV) tracks S&P 500 Index and the SPDR S&P 500 ETF (SPY) tracks S&P 500 Index. IShares Core S&P 500 ETF has $453.37 billion in assets, SPDR S&P 500 ETF has $513.79 billion. IVV has an expense ratio of 0.03% and SPY charges 0.09%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Large Cap Blend.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.