Is Invesco S&P SmallCap Quality ETF (XSHQ) a Strong ETF Right Now?

Making its debut on 04/06/2017, smart beta exchange traded fund Invesco S&P SmallCap Quality ETF (XSHQ) provides investors broad exposure to the Style Box - Small Cap Blend category of the market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

Because the fund has amassed over $315.24 million, this makes it one of the average sized ETFs in the Style Box - Small Cap Blend. XSHQ is managed by Invesco. XSHQ, before fees and expenses, seeks to match the performance of the SmallCap 600 Quality Index.

The S&P SmallCap 600 Quality Index is composed of 120 securities in the S&P SmallCap 600 Index that have the highest quality score, which is calculated based on the average of three fundamental measures: return on equity, accruals ratio and financial leverage ratio.

Cost & Other Expenses

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

Annual operating expenses for XSHQ are 0.29%, which makes it on par with most peer products in the space.

XSHQ's 12-month trailing dividend yield is 1.21%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

XSHQ's heaviest allocation is in the Industrials sector, which is about 25% of the portfolio. Its Financials and Consumer Discretionary round out the top three.

Story ContinuesLooking at individual holdings, Sterling Infrastructure Inc (STRL) accounts for about 2.44% of total assets, followed by Armstrong World Industries Inc (AWI) and Brinker International Inc (EAT).

XSHQ's top 10 holdings account for about 20.69% of its total assets under management.

Performance and Risk

So far this year, XSHQ has gained about 2.16%, and is up about 9.48% in the last one year (as of 08/13/2025). During this past 52-week period, the fund has traded between $34.34 and $47.59.

XSHQ has a beta of 0.98 and standard deviation of 21.33% for the trailing three-year period. With about 122 holdings, it effectively diversifies company-specific risk .

Alternatives

Invesco S&P SmallCap Quality ETF is a reasonable option for investors seeking to outperform the Style Box - Small Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.

Vanguard Small-Cap ETF (VB) tracks CRSP US Small Cap Index and the iShares Core S&P Small-Cap ETF (IJR) tracks S&P SmallCap 600 Index. Vanguard Small-Cap ETF has $64.42 billion in assets, iShares Core S&P Small-Cap ETF has $82.86 billion. VB has an expense ratio of 0.05% and IJR changes 0.06%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Small Cap Blend

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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Invesco S&P SmallCap Quality ETF (XSHQ): ETF Research Reports

This article originally published on Zacks Investment Research (zacks.com).

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