IQLT: Well-Rounded Ex-US Large Cap ETF

seekingalpha08-28

iShares MSCI Intl Quality Factor ETF (IQLT) holds about 300 international stocks, weighted based on capitalization and a quality score.IQLT is well diversified across countries, sectors and holdings, ...

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Reviews with updated data are posted when necessary. IQLT strategy iShares MSCI Intl Quality Factor ETF (NYSEARCA:IQLT) started investing operations on 1/13/2015 and tracks the MSCI World ex USA Sector Neutral Quality Index. It has 326 holdings, a 30-day SEC yield of 2.12% and a total expense ratio of 0.30%. As described in the prospectus by iShares, the underlying index is derived from the MSCI World ex USA Index. Each security in the parent index is assigned a quality score calculated based on return on equity (higher is better), financial leverage (lower is better) and year-over-year earnings growth stability. Then, it is weighted by the quality score multiplied by its weight in the parent index. Finally, weights are adjusted so that sectors represent approximately the same weight as in the parent index, with a maximum of 5% by constituent. The index is rebalanced twice a year. In the most recent fiscal year, the portfolio turnover rate was 28%. This article will use as a benchmark an ETF close to the parent index: iShares MSCI ACWI ex U.S. ETF (ACWX). IQLT portfolio The fund is mostly invested in large and mega-cap companies (about 92% of asset value). The heaviest countries in the portfolio are the U.K. (16.9%), Switzerland (15.2%) and Japan (12.8%). Other countries are below 9%. Compared to ACWX, IQLT overweights mostly the U.K. and Northern Europe. It ignores China, Taiwan and India. Hong Kong weighs about 2%, so direct exposure to geopolitical risks related to China is low. IQLT geographical allocation in % of assets (Chart: author, data: iShares) The heaviest sector is financials (21.9%), followed by industrials (16.7%), healthcare (12.4%) and consumer discretionary (10.7%). Other sectors are below 9%. The sector breakdown of IQLT is quite close to ACWX, except it significantly underweights technology. IQLT sector breakdown in % of assets (Chart: author, data: iShares) IQLT is more expensive than ACWX regarding aggregate valuation ratios. It shows marginally higher growth metrics, as reported in the next table.     IQLT ACWX   Price/earnings 18.99 16.13   Price/book 2.96 1.83   Price/sales 2.17 1.54   Price/cash flow 12.89 10.02   Earnings growth % 19.86% 19.34%   Sales growth % 8.95% 7.51%   Cash flow growth % 4.88% 3.80%   Click to enlarge The top 10 issuers, listed in the next table, represent 25.7% of asset value and the largest name weighs 4.3%. The portfolio is well-diversified and risks related to individual companies are low to moderate. Nonetheless, IQLT is more concentrated than ACWX, which has only 12.4% of assets in the top 10 holdings and 2.7% in the top name.   Name Sector Weight % Location Local Ticker   ASML HOLDING NV Technology 4.29 Netherlands ASML   NOVO NORDISK CLASS B Health Care 3.55 Denmark NOVO B   NESTLE SA Cons. Staples 2.77 Switzerland NESN   SHELL PLC Energy 2.71 UK SHEL   LVMH Cons. Discretionary 2.29 France MC   ROCHE HOLDING PAR AG Health Care 2.29 Switzerland ROG   ASTRAZENECA PLC Health Care 2.28 UK AZN   ALLIANZ Financials 2.03 Germany ALV   NOVARTIS AG Health Care 1.80 Switzerland NOVN   UNILEVER PLC Cons. Staples 1.67 UK ULVR   Click to enlarge Performance Since its inception in 2015, IQLT has outperformed ACWX by 31.4% in total return. IQLT vs. ACWX, total return since inception (Seeking Alpha) However, the gap in 2024 to date is insignificant: IQLT vs ACWX, year-to-date (Seeking Alpha) IQLT vs. competitors The next table compares characteristics of IQLT and four non-hedged, passively managed, factor-based ETFs in ex-US developed markets:  iShares MSCI EAFE Value ETF (EFV) iShares MSCI EAFE Growth ETF (EFG) Schwab Fundamental International Large Co. Index ETF (FNDF) Goldman Sachs ActiveBeta International Equity ETF (GSIE)      IQLT EFV EFG FNDF GSIE   Inception 1/13/2015 8/1/2005 8/1/2005 8/15/2013 11/6/2015   Expense Ratio 0.30% 0.34% 0.36% 0.25% 0.25%   AUM $8.33B $15.23B $15.70B $13.90B $3.77B   Avg Daily Volume $39.31M $122.48M $93.21M $30.33M $10.70M   Holdings 326 493 400 973 704   Top 10 25.70% 18.54% 25.38% 12.04% 10.77%   Turnover 28.00% 22.00% 19.00% 11.00% 14.00%   Div. Yield TTM 2.43% 4.41% 1.45% 2.95% 2.45%   Click to enlarge IQLT has the highest turnover and is the least diversified of these funds. Its expense ratio is average among peers. The next chart compares total returns, starting on 11/7/2015 to match all inception dates. IQLT is the best performer, shortly ahead of FNDF. IQLT vs. competitors since 11/7/2015 (Seeking Alpha) Over the last 12 months, IQLT and EFV are almost on par, ahead of the competition by a short margin. IQLT vs. competitors, 12-month return (Seeking Alpha) Takeaway  iShares MSCI Intl Quality Factor ETF (IQLT) invests in about 300 ex-US international stocks, weighted based on capitalization and a quality score. IQLT is well diversified across countries, sectors and holdings. It looks quite expensive based on valuation ratios. However, IQLT has outperformed an ex-US benchmark and four of the most popular factor-based ETFs in its stock universe. In conclusion, IQLT is a reasonable choice for investors seeking international diversification in large companies.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2462149451"}