Key Morningstar Metrics for iShares MSCI USA Quality Factor Index ETF
- Morningstar Category: US Equity
- Morningstar Medalist Rating: Silver
- Morningstar Rating: ★★★★
- MER: 0.31%
iShares MSCI USA Quality Factor ETF XQLT features the market’s most profitable companies while minimizing exposure to firms with excessive debt. These traits are linked to market-beating returns and should support long-term outperformance.
The fund tracks the MSCI USA Sector Neutral Quality Index. It seeks mid- and large-cap companies that exhibit high profitability, low leverage, and stable recent earnings growth. These measures are scored against sector peers to arrive at a composite quality score. The index adds the top-scoring companies in each sector until it reaches 125 holdings. The final portfolio follows the sector weightings of the market-cap-weighted MSCI USA Index to minimize any sector biases that may result from favoring high-quality stocks.
Quality stocks typically command higher price multiples than the rest of the market. This nudges the fund closer to the growth side of the Morningstar Style Box relative to some large-blend peers. The growth-leaning stocks at the top of the portfolio will steer returns because of this. Further, with 44% of assets concentrated in its largest 10 holdings, these names will have an outsize impact on fund returns. The Morningstar US Large-Mid Cap Index category benchmark concentrates 39% of assets in its largest 10.
While the largest (and usually most expensive) holdings guide returns, their lofty valuations are likely deserved. The fund’s four top holdings are Nvidia, Apple, Microsoft, and Eli Lilly. All are leaders in their respective industries and have appealing growth prospects. It’s a similar story for the rest of the portfolio. The largest 10 stocks boast wide economic moat ratings, and more than three-fourths of the entire portfolio earns the same high mark.
This fund successfully channels the quality factor, which helped the US ETF to a sturdy 13.3% annualized return for the 10 years through October 2025. The US Large-Mid Cap Index has proved a formidable hurdle, though, besting this fund by 1.2 percentage points annualized for the period. Excellent performance among the growth-oriented stocks at the top of each portfolio propelled both to strong returns, with low-quality highflyers giving the index the edge.
iShares MSCI USA Quality Factor Index ETF: Performance Highlights
This strategy has benefited from the market’s strong performance for much of its life, but excluding some of the best-performing large-cap stocks has held it back relative to the US Large-Mid Cap Index. The US ETF’s 13.5% annualized return since its 2013 inception through October 2025 was 49 basis points worse than the index but almost 2 percentage points better than the large-blend category average.
Investors may expect lower volatility than the market with a portfolio of high-quality, stable businesses. That has not been the case, though. Its volatility has nearly matched that of the US Large-Mid Cap Index over the last decade, and it was slightly more volatile than the US category norm. The same companies that fueled the fund’s strong returns can also be volatile. Nvidia has been notably overweight in this portfolio. While its excellent recent results have helped performance, the stock tends to be highly volatile.
Volatility may follow the market over extended periods, but the ETF can control risk over shorter periods of stress. The strategy fared slightly better than the category index during the covid-19-driven selloff in February and March 2020.
