IQLT: Global ETF Tilted To Europe And Financials
Summary
- iShares MSCI Intl Quality Factor ETF holds 300 stocks from developed countries.
- The ETF favors companies with a higher ROE, a stable earnings growth and a lower debt.
- It is well-diversified across countries, sectors and holdings.
- The U.K. and Switzerland are its top countries, and its top sector is financials.
- Compared to competitors, iShares MSCI Intl Quality Factor ETF historical performance is average.
- Quantitative Risk & Value members get exclusive access to our real-world portfolio. See all our investments here »
ugurhan
IQLT strategy and portfolio
iShares MSCI Intl Quality Factor ETF (NYSEARCA:IQLT) started investing operations on 01/13/2015 and tracks the MSCI World ex USA Sector Neutral Quality Index. It has a portfolio of 300 stocks, a 12-month distribution yield of 2.81%, and a total expense ratio of 0.30%. Distributions are paid semi-annually.
As described in the prospectus by iShares, the underlying index weights constituents of the MSCI World ex USA Index (the parent index) based on market capitalization adjusted with a quality score including three metrics: return on equity (higher is better), year-over-year earnings growth (stable is better) and financial leverage (lower is better). Constituent weights are capped at 5% and normalized so that sectors have approximately the same weight as in the parent index. The index is rebalanced semi-annually. The portfolio turnover rate was 32% in the most recent fiscal year.
The fund invests mostly in Europe (about 68% of asset value) and in large companies (89%). The top four countries are the U.K. (15%), Switzerland (13.4%), Japan (11.5%) and France (10.4%). Other countries are below 8%. Hong Kong weighs 4.4%, so direct exposure to geopolitical and regulatory risks related to China is low. The next chart lists the top 14 countries, representing an aggregate weight of 97.6%.
Geographical allocation in % (Chart: author; data: iShares)
The top four sectors are financial (19.6%), industrials (14.7%), healthcare (12.9%) and consumer discretionary (11.7%). Other sectors are below 10%.
Sector breakdown in % (Chart: author; data: iShares)
The portfolio has 300 constituents, but it is quite concentrated in the top names. The top 10 holdings, listed below, represent 29.4% of asset value. The heaviest one weighs 5.7%, so risks related to individual companies are moderate.
Name | Sector | Weight (%) | Ticker* | Exchange |
NOVO NORDISK CLASS B | Health Care | 5.7 | NOVOB | Omx Nordic Exch. Copenhagen |
ASML HOLDING NV | Technology | 4.13 | ASML | Euronext Amsterdam |
NESTLE SA | Cons. Staples | 3.68 | NESN | SIX Swiss Exch. |
LVMH | Cons. Discretionary | 3.58 | MC | Euronext Paris |
ROCHE HOLDING PAR AG | Health Care | 3.47 | ROG | SIX Swiss Exch. |
BHP GROUP LTD | Materials | 2.22 | BHP | ASX |
BP PLC | Energy | 1.85 | BP. | LSE |
AIA GROUP LTD | Financials | 1.82 | 1299 | Hong Kong Exch. |
TOTALENERGIES | Energy | 1.49 | TTE | Euronext Paris |
ALLIANZ | Financials | 1.46 | ALV | Xetra |
* Tickers in primary exchanges. Some of them have ADRs listed in the U.S.: to find them, copy and paste the company name in Seeking Alpha's search box.
Past performance compared to competitors
The next chart plots the total return of IQLT and three non-hedged, quality-style international ETFs:
- WisdomTree Global ex-U.S. Quality Dividend Growth (DNL), reviewed here,
- WisdomTree International Quality Dividend Growth Fund (IQDG), reviewed here.
- FlexShares International Quality Dividend Index Fund (IQDF).
The chart starts on 4/11/2016 to match all inception dates.
IQLT vs competitors since April 2016 (Seeking Alpha)
IQLT is the second-best performer after DNL, and IQDG is close behind. It has been the best performer in the last 12 months, once again shortly ahead of IQDG:
IQLT vs competitors, last 12 months (Seeking Alpha)
The annual sum of distributions has increased from $0.70 to $1.02 per share between 2015 and 2022. It is a 45.7% growth in 7 years, while the cumulative inflation has been about 25% (based on CPI). Although IQLT is not a dividend-oriented fund, the distribution growth rate since inception has beaten inflation.
Takeaway
iShares MSCI Intl Quality Factor ETF holds 300 stocks from developed markets weighted using a quality score. Companies with a higher ROE, a stable earnings growth and a lower financial leverage get a higher weight than in the parent index. The fund is well-diversified across countries, sectors and holdings. The top country in asset value is the U.K., and the top sector is financials. Europe represents 68% of assets.
iShares MSCI Intl Quality Factor ETF historical performance is average among competitors. It is not a dividend-oriented fund, but the distribution growth rate since 2015 has beaten inflation.
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