For this week’s content analysis we employed StockPointer’s PFScan tool to replicate and analyze an ETF, BMO’s “MCSI USA High Quality Index ETF” (ZUQ). Relatively recent, this exchange-traded fund was introduced November 5th, 2014. You will find attached ZUQ’s PFscan 
Download and its SPscore table Download .
The first, and most important, factor that drew our attention in assessing ZUQ was that 94% of the fund’s constituents generate a positive EVA, offering an EPI (economic performance index) of 1.0 or higher. From this observation alone we can agree that this is indeed a “high quality” portfolio, particularly if measured against an ETF replicating the total S&P500 index—only 67% of the S&P500’s constituents generate positive EVA.
Given the higher quality, as demonstrated by ZUQ’s higher average and frequency of strong economic performance, we could reasonably expect the ETF to trade at a higher premium to its underlying intrinsic value. This isn’t the case. The weighted average P/IV for ZUQ is 1.55, against 2.0 for the S&P500*.
We’ll also note the different sector distribution offered by ZUQ. Relative to the S&P500, the healthcare, consumer goods, and IT sectors are more heavily represented. At the same time, ZUQ’s exposure to the financials and energy sectors is slighter, while its holdings in the telecomm and utilities are zero.
If you are searching for an American fund ‘compatible’ with StockPointer and the EVA methodology, while being favorably positioned relative to its principle peer index, ZUQ might be a “high quality” solution. Please note that we also presented, in a similar commentary, BMO’s “Low Volatility Canada ETF” (ZLB) on February 18th, 2015. If you hadn’t had the chance to read that then, here is the link.
Keep in mind that StockPointer gives you the opportunity, using the PFScan function, to create and analyze a mutual fund (equity portion) or ETF that you might consider integrating to client portfolios.
For more information on ZUQ, here is the link to BMO’s website.
