The U.S. stock market has been notching new highs, which tends to kick up the likelihood of a market pullback (defined as a drop of 5% to 10%) or even a correction (a 10% to 20% sell-off). That's where the JPMorgan U.S. Quality Factor ETF (JQUA) comes in.
The fund – a member of the Kiplinger ETF 20, our favorite exchange-traded funds, invests in high-quality U.S. companies with robust profit margins and little debt. Over the past five years, the portfolio of 200-odd stocks has consistently held up better than the S&P 500 Index in down markets.
In the tariff swoon of early 2025, for instance, JPMorgan U.S. Quality Factor lost 16.7%; the S&P 500, 18.8%. The fund weathered 2022, a tough year, better than the broad-market benchmark, too. And yet, despite the fund's defensive characteristics, its five-year annualized return, 15.8%, has, for the most part, kept pace with the 16.5% climb in the S&P 500.
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Quality hallmarks of this JPMorgan fund
But minimizing losses is just a fringe benefit of this index fund's quality focus. The fund's underlying benchmark starts with the 1,000 largest U.S. stocks and ranks them on 10 quality measures that touch on profitability, financial strength and earnings quality.
Companies with good return on equity (a profitability measure), free cash flow (money left over after operating expenses and spending to maintain or upgrade long-term assets) to sales, and cash flow interest cover (a gauge of a company's ability to pay its interest obligations using its operating cash flow), for example, will rank well. Low volatility and stable earnings, among other measures, also matter.
The firms that rank best in each quality measure, on average, make it into the fund, and stocks are weighted by average quality scores.
At last report, Nvidia (NVDA), Apple (AAPL), Alphabet (GOOGL), Microsoft (MSFT) and Broadcom (AVGO) made up the fund's top five holdings. But concentration at the top isn't a concern here: The five stocks account for just 11% of assets.
By contrast, the five biggest stocks in the S&P 500 — Nvidia, Microsoft, Apple, Amazon.com (AMZN) and Meta Platforms (META) —make up 28% of the index.
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.
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