Is Invesco S&P SmallCap Quality ETF (XSHQ) a Strong ETF Right Now?

A smart beta exchange traded fund, the Invesco S&P SmallCap Quality ETF (XSHQ) debuted on 04/06/2017, and offers broad exposure to the Style Box - Small Cap Blend category of the market.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

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

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

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.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

XSHQ is managed by Invesco, and this fund has amassed over $303.83 million, which makes it one of the average sized ETFs in the Style Box - Small Cap Blend. XSHQ, before fees and expenses, seeks to match the performance of the SmallCap 600 Quality Index.

The S&P SmallCap 600 Quality Index is composed of 120 securities in the S&P SmallCap 600 Index that have the highest quality score, which is calculated based on the average of three fundamental measures: return on equity, accruals ratio and financial leverage ratio.

Cost & Other Expenses

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.29%.

It has a 12-month trailing dividend yield of 1.20%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Financials sector - about 27.6% of the portfolio. Industrials and Information Technology round out the top three.

Taking into account individual holdings, Paycom Software Inc (PAYC) accounts for about 3.12% of the fund's total assets, followed by Brinker International Inc (EAT) and Argan Inc (AGX).

Its top 10 holdings account for approximately 22.06% of XSHQ's total assets under management.

Performance and Risk

So far this year, XSHQ has gained about 12.72%, and was up about 8.69% in the last one year (as of 09/02/2026). During this past 52-week period, the fund has traded between $40.02 and $50.01.

The fund has a beta of 0.92 and standard deviation of 19.49% for the trailing three-year period. With about 122 holdings, it effectively diversifies company-specific risk .

Alternatives

Invesco S&P SmallCap Quality ETF is a reasonable option for investors seeking to outperform the Style Box - Small Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.

Vanguard Morningstar Small-Cap ETF (VB) tracks CRSP US Small Cap Index and the iShares Core S&P Small-Cap ETF (IJR) tracks S&P SmallCap 600 Index. Vanguard Morningstar Small-Cap ETF has $79.92 billion in assets, iShares Core S&P Small-Cap ETF has $107.89 billion. VB has an expense ratio of 0.03% and IJR changes 0.06%.

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 - Small Cap Blend

Bottom Line

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This article originally published on Zacks Investment Research (zacks.com).

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