Factor funds can be tricky. These funds, which aim to capitalize on certain market attributes or themes, don't always seem to work if the market moves too quickly.
But we've noticed something about the JPMorgan U.S. Quality Factor (JQUA) fund, a member of the Kiplinger ETF 20, our favorite cheap ETFs you can buy. The exchange-traded fund has kept pace with the S&P 500 index over most time frames, and it has been a smidge less volatile. Over the past five years, the fund's 13.3% annualized return eked past the 13.2% gain in iShares Core S&P 500 (SPY), an S&P 500 index ETF, with less volatility.
What's the difference between the two funds? The iShares ETF holds all of the large-company stocks in the S&P 500, which are picked by a committee at S&P Dow Jones Indices. The selection process favors companies that meet certain criteria, such as company size, positive earnings and a sufficient percentage of shares available for public trading.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But JPMorgan U.S. Quality Factor ETF holds just 250-odd stocks and starts with a broader index, the Russell 1000, which means more midsize firms are in the mix. Companies in the Quality Factor fund have an average market value of $112 billion, according to financial data firm Morningstar. (By contrast, stocks in the Core S&P 500 ETF have an average market value more than double that, $278 billion.)
Finally, companies in the Quality Factor ETF must pass muster for a variety of profitability criteria (such as return on equity), solvency (such as cash flow relative to debt) and earnings quality (such as the ratio of a firm's balance sheet to its average total assets over the past year).
Despite their differences, the two funds share similar top-10 holdings, including some of the usual suspects: Meta Platforms (META), Alphabet (GOOGL), Nvidia (NVDA) and Microsoft (MSFT). But about one-third of the holdings in U.S. Quality Factor ETF aren't in the S&P 500 index. Some of those stocks, including home goods retailer Williams-Sonoma (WSM) and cybersecurity software maker CrowdStrike Holdings (CRWD), have more than doubled in price over the past 12 months.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
Related content
-
Nvidia Stock's Been Growing for Years. Just Look At Its 100,000% ReturnNvidia shareholders have had to stomach intense volatility over the years, but they have come out on top thanks to the AI chipmaker's bellwether status.
-
The 'Concerning Trends' in Retirement NowAmericans are less satisfied with their life in retirement and cite inflation and higher healthcare costs as just two of the problems they're facing.
-
Nvidia Stock's Been Growing for Years. Just Look At Its 100,000% ReturnNvidia shareholders have had to stomach intense volatility over the years, but they have come out on top thanks to the AI chipmaker's bellwether status.
-
10 Tax Topics Every Retiree Should Know AboutA little knowledge can go a long way toward saving on your tax bill. Print this out and take it to your tax planner so you can have a productive chat.
-
It's No Surprise That Berkshire Hathaway's in the 100,000% Return ClubWarren Buffett's fascination with the insurance industry has helped Berkshire Hathaway's stock return snowball.
-
4 Turnaround Stocks to Consider – and 2 More to Keep an Eye OnA turnaround stock is a struggling company with a strong makeover plan that can pay off for intrepid investors.
-
Facing a Layoff? Ask Your Employer These Questions NowIf you're being laid off or forced into early retirement, don't make any decisions without proper guidance — and that starts by asking some key questions.
-
Stock Market Today: Dow Jumps 674 Points in Friday's Relief RallyThe gains weren't limited to stocks, though, with gold futures closing above the $3,000 per ounce mark for the first time.
-
Have $1M+ Saved? Consider a Financial Planning One-Stop ShopA 'one-stop shop' team — including a financial planner, estate planning lawyer, CPA and more — could serve all of your tax, estate and retirement planning needs.
-
Stock Market Today: Stocks Drop on Trump's EU Tariff ThreatsThe White House said alcohol imports from the European Union could soon face tariffs of 200%.
