The iShares MSCI Emerging Markets Quality Factor ETF (EQLT) seeks to track the MSCI Emerging Markets Quality Index, which identifies companies in developing markets with high return on equity, stable earnings growth, and low debt-to-equity ratios. This quality-focused emerging markets ETF provides exposure to financially sound companies across Asia, Latin America, and other developing regions.
How It Works
EQLT uses a rules-based methodology that screens emerging market stocks for quality metrics including return on equity above 15%, consistent earnings growth over three years, and debt-to-equity ratios below sector medians. Selected companies are weighted by market capitalization with quality score adjustments, favoring higher-quality firms. The fund rebalances semi-annually in May and November to maintain quality criteria and geographic diversification across 20+ emerging market countries including China, India, Taiwan, and Brazil.
Key Features
- Focuses exclusively on high-quality emerging market companies, filtering out financially unstable firms that often drag down broad EM performance
- Recently launched in September 2024, offering modern portfolio construction with updated quality screening methodology for emerging markets exposure
- Provides geographic diversification across Asia-Pacific, Latin America, and EMEA regions while maintaining quality discipline through systematic screening
Risks
- This ETF can lose significant value during emerging market selloffs, potentially declining 40-60% during global risk-off periods like 2008 or 2020
- Currency fluctuations against the U.S. dollar can amplify losses, as local currency declines reduce dollar-denominated returns for American investors
- Quality screening may cause the fund to miss high-growth opportunities in emerging markets, potentially underperforming during momentum-driven rallies in speculative stocks
Who Should Own This
Best suited as a satellite holding (5-15% of equity allocation) for investors with 7+ year time horizons seeking quality-focused emerging markets exposure. High risk tolerance required due to EM volatility and currency risk. Ideal for investors who want developing market diversification but prefer financially stable companies over broad emerging market exposure.