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IWM vs. QUAL: What’s The Difference?

The iShares Russell 2000 ETF (IWM) and the iShares MSCI USA Quality Factor ETF (QUAL) are both among the Top 100 ETFs. IWM is a iShares Small Blend fund and QUAL is a iShares Large Blend fund. So, what’s the difference between IWM and QUAL? And which fund is better?

The expense ratio of IWM is 0.04 percentage points higher than QUAL’s (0.19% vs. 0.15%). IWM also has a higher exposure to the healthcare sector and a higher standard deviation. Overall, IWM has provided higher returns than QUAL over the past ten years.

In this article, we’ll compare IWM vs. QUAL. We’ll look at industry exposure and portfolio growth, as well as at their holdings and performance. Moreover, I’ll also discuss IWM’s and QUAL’s risk metrics, fund composition, and annual returns and examine how these affect their overall returns.

Introduction To Mutual Funds
Introduction To Mutual Funds
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Summary

IWMQUAL
NameiShares Russell 2000 ETFiShares MSCI USA Quality Factor ETF
CategorySmall BlendLarge Blend
IssueriSharesiShares
AUM66.48B23.93B
Avg. Return13.52%13.42%
Div. Yield0.86%1.29%
Expense Ratio0.19%0.15%

The iShares Russell 2000 ETF (IWM) is a Small Blend fund that is issued by iShares. It currently has 66.48B total assets under management and has yielded an average annual return of 13.52% over the past 10 years. The fund has a dividend yield of 0.86% with an expense ratio of 0.19%.

The iShares MSCI USA Quality Factor ETF (QUAL) is a Large Blend fund that is issued by iShares. It currently has 23.93B total assets under management and has yielded an average annual return of 13.42% over the past 10 years. The fund has a dividend yield of 1.29% with an expense ratio of 0.15%.

IWM’s dividend yield is 0.43% lower than that of QUAL (0.86% vs. 1.29%). Also, IWM yielded on average 0.10% more per year over the past decade (13.52% vs. 13.42%). The expense ratio of IWM is 0.04 percentage points higher than QUAL’s (0.19% vs. 0.15%).

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Fund Composition

Industry Exposure

IWM vs. QUAL - Industry Exposure

IWMQUAL
Technology14.21%22.52%
Industrials14.78%9.22%
Energy3.74%2.24%
Communication Services3.79%11.44%
Utilities2.44%2.41%
Healthcare20.3%13.22%
Consumer Defensive3.65%8.57%
Real Estate8.59%2.72%
Financial Services13.76%15.87%
Consumer Cyclical10.99%9.43%
Basic Materials3.74%2.35%

The iShares Russell 2000 ETF (IWM) has the most exposure to the Healthcare sector at 20.3%. This is followed by Industrials and Technology at 14.78% and 14.21% respectively. Consumer Defensive (3.65%), Basic Materials (3.74%), and Energy (3.74%) only make up 11.13% of the fund’s total assets.

IWM’s mid-section with moderate exposure is comprised of Communication Services, Real Estate, Consumer Cyclical, Financial Services, and Technology stocks at 3.79%, 8.59%, 10.99%, 13.76%, and 14.21%.

The iShares MSCI USA Quality Factor ETF (QUAL) has the most exposure to the Technology sector at 22.52%. This is followed by Financial Services and Healthcare at 15.87% and 13.22% respectively. Basic Materials (2.35%), Utilities (2.41%), and Real Estate (2.72%) only make up 7.48% of the fund’s total assets.

QUAL’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Consumer Cyclical, Communication Services, and Healthcare stocks at 8.57%, 9.22%, 9.43%, 11.44%, and 13.22%.

IWM is 7.08% more exposed to the Healthcare sector than QUAL (20.3% vs 13.22%). IWM’s exposure to Industrials and Technology stocks is 5.56% higher and 8.31% lower respectively (14.78% vs. 9.22% and 14.21% vs. 22.52%). In total, Consumer Defensive, Basic Materials, and Energy also make up 2.03% less of the fund’s holdings compared to QUAL (11.13% vs. 13.16%).

Holdings

IWM - Holdings

IWM HoldingsWeight
AMC Entertainment Holdings Inc Class A0.52%
Intellia Therapeutics Inc0.33%
Crocs Inc0.3%
BlackRock Cash Funds Treasury SL Agency0.29%
Tenet Healthcare Corp0.26%
Lattice Semiconductor Corp0.26%
Tetra Tech Inc0.25%
II-VI Inc0.25%
EastGroup Properties Inc0.24%
Arrowhead Pharmaceuticals Inc0.24%

IWM’s Top Holdings are AMC Entertainment Holdings Inc Class A, Intellia Therapeutics Inc, Crocs Inc, BlackRock Cash Funds Treasury SL Agency, and Tenet Healthcare Corp at 0.52%, 0.33%, 0.3%, 0.29%, and 0.26%.

Lattice Semiconductor Corp (0.26%), Tetra Tech Inc (0.25%), and II-VI Inc (0.25%) have a slightly smaller but still significant weight. EastGroup Properties Inc and Arrowhead Pharmaceuticals Inc are also represented in the IWM’s holdings at 0.24% and 0.24%.

QUAL - Holdings

QUAL HoldingsWeight
Facebook Inc Class A4.77%
Nike Inc Class B4.05%
Microsoft Corp3.54%
Apple Inc3.52%
Johnson & Johnson2.99%
BlackRock Inc2.87%
Target Corp2.8%
Mastercard Inc Class A2.72%
NVIDIA Corp2.71%
Alphabet Inc Class A2.49%

QUAL’s Top Holdings are Facebook Inc Class A, Nike Inc Class B, Microsoft Corp, Apple Inc, and Johnson & Johnson at 4.77%, 4.05%, 3.54%, 3.52%, and 2.99%.

BlackRock Inc (2.87%), Target Corp (2.8%), and Mastercard Inc Class A (2.72%) have a slightly smaller but still significant weight. NVIDIA Corp and Alphabet Inc Class A are also represented in the QUAL’s holdings at 2.71% and 2.49%.

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Risk Analysis

IWMQUAL
Mean Return1.120
R-squared77.730
Std. Deviation18.870
Alpha-5.120
Beta1.230
Sharpe Ratio0.680
Treynor Ratio9.560

The iShares Russell 2000 ETF (IWM) has a Beta of 1.23 with a Mean Return of 1.12 and a Standard Deviation of 18.87. Its Sharpe Ratio is 0.68 while IWM’s R-squared is 77.73. Furthermore, the fund has a Treynor Ratio of 9.56 and a Alpha of -5.12.

The iShares MSCI USA Quality Factor ETF (QUAL) has a Standard Deviation of 0 with a Sharpe Ratio of 0 and a Alpha of 0. Its Mean Return is 0 while QUAL’s Treynor Ratio is 0. Furthermore, the fund has a Beta of 0 and a R-squared of 0.

IWM’s Mean Return is 1.12 points higher than that of QUAL and its R-squared is 77.73 points higher. With a Standard Deviation of 18.87, IWM is slightly more volatile than QUAL. The Alpha and Beta of IWM are 5.12 points lower and 1.23 points higher than QUAL’s Alpha and Beta.

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Performance

Annual Returns

IWM vs. QUAL - Annual Returns

YearIWMQUAL
202019.89%16.96%
201925.42%34.14%
2018-11.02%-5.77%
201714.66%22.26%
201621.36%9.18%
2015-4.33%5.56%
20144.94%11.62%
201338.85%0.0%
201216.39%0.0%
2011-4.19%0.0%
201026.76%0.0%

IWM had its best year in 2013 with an annual return of 38.85%. IWM’s worst year over the past decade yielded -11.02% and occurred in 2018. In most years the iShares Russell 2000 ETF provided moderate returns such as in 2017, 2012, and 2020 where annual returns amounted to 14.66%, 16.39%, and 19.89% respectively.

The year 2019 was the strongest year for QUAL, returning 34.14% on an annual basis. The poorest year for QUAL in the last ten years was 2018, with a yield of -5.77%. Most years the iShares MSCI USA Quality Factor ETF has given investors modest returns, such as in 2010, 2015, and 2016, when gains were 0.0%, 5.56%, and 9.18% respectively.

Portfolio Growth

IWM vs. QUAL - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
IWM$10,000$18,69113.52%
QUAL$10,000$23,25113.42%

A $10,000 investment in IWM would have resulted in a final balance of $18,691. This is a profit of $8,691 over 7 years and amounts to a compound annual growth rate (CAGR) of 13.52%.

With a $10,000 investment in QUAL, the end total would have been $23,251. This equates to a $13,251 profit over 7 years and a compound annual growth rate (CAGR) of 13.42%.

IWM’s CAGR is 0.10 percentage points higher than that of QUAL and as a result, would have yielded $4,560 less on a $10,000 investment. Thus, IWM outperformed QUAL by 0.10% annually.


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