While markets have moved higher since the March lows were formed, not all stocks have performed equally as well. For example, tech stocks have been on fire until recently, as the Nasdaq Composite has sought out fresh highs earlier this week, while other stocks are more fickle and fragile, and have suffered from the mercurial regulations prompted by the coronavirus pandemic.
For ETF investors who are looking for the ability to buy those higher performing, higher quality stocks, but still have the flexibility to sell lower quality equities, the Direxion S&P 500® High minus Low Quality ETF (QMJ) could be something to explore.
The Direxion S&P 500® High minus Low Quality ETF aims to deliver a more complete solution to gaining exposure to the quality factor. By extending the scope of quality scores across the U.S. large cap universe to both high and low quality companies, the ETF seeks to deliver a robust profile of quality exposure.
According to the website, the fund utilizes a capital-efficient 150/50 structure that captures both high and low quality scores based on three core metrics: return on equity, accruals, and financial leverage. It provides investors with a differentiated approach to quality; one rooted in the idea that higher quality companies outperform lower quality ones over the long- term. Overall, QMJ aims to deliver access to highly profitable, operationally efficient, and stable companies in a more robust way, seeking an investment result, before fees and expenses, that tracks the S&P 500® 150/50 Quality 0.30% Decrement Index.
The S&P 500® 150/50 Quality 0.30% Decrement Index (the “Index”) seeks to measure the performance of a portfolio of long positions in high quality stocks and short positions in low quality stocks, as determined by S&P Dow Jones Indices, LLC, the “Index Provider.” To this end, the Index consists of a portfolio that has 150% long exposure to the S&P 500® Quality Index (the “Long Component”) and 50% short (or inverse) exposure to the S&P 500® Quality – Lowest Quintile Index (the “Short Component”). The Long Component is comprised of stocks selected from the S&P 500® based on their quality score as defined by the Index Provider. The Short Component is comprised of stocks selected from the S&P 500®with the lowest quality scores.
Given that it has both long and short holdings, the ETF is selective in its allocations. Some of the top long holdings include Apple, Johnson & Johnson, Visa, MasterCard, and Procter & Gamble. Meanwhile, some of the top short holdings include Home Depot, McDonald’s, JPMorgan Chase & Co, Walt Disney, Philip Morris International.
For investors looking for the flexibility to trade both the winners, the Direxion S&P 500® High minus Low Quality ETF is a good fit.
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