Here's how to own US equities wisely when the S&P 500 is at record highs

Key Points

• The JPMorgan U.S. Quality Factor ETF (JQUA) is a rules-based, passively managed ETF that provides exposure to high-quality US large-cap companies, selected from the Russell 1000 universe based on profitability, earnings quality, and solvency.
• With a sector-neutral construction that mirrors Russell 1000 sector weights, JQUA delivers pure quality factor exposure without unintended sector bets — a structural advantage over many peers.
• JQUA's top holding accounts for only 2.71% of the portfolio, making it one of the most diversified quality ETFs available, with top 10 concentration of approximately 20.1%.
• At 0.12% per annum, JQUA is the lowest-cost ETF in its peer group.
• The fund's strongest case is capital preservation; it is a compelling defensive vehicle for investors seeking US equity exposure with downside protection.

The fund's ability to deliver this defensive profile is rooted in how it selects and weights its holdings — a construction that differs from both passive market-cap indices and most active quality strategies.

Product overview

The JPMorgan U.S. Quality Factor ETF is a rules-based, passively managed ETF that provides exposure to high-quality US large-cap companies, selected from the Russell 1000 universe based on profitability, earnings quality, and solvency. Managed by J.P. Morgan Asset Management (JPMAM) and listed on NYSE Arca, the fund tracks the JP Morgan US Quality Factor Index.

As of 28 May 2026, the fund manages about USD 8.08 billion in assets across 331 holdings, making it one of the larger quality factor ETFs in the US market.

JQUA uses full physical replication, meaning it directly holds the underlying securities and does not rely on leverage, swaps, or derivatives. It pays dividends on a quarterly basis and has an expense ratio of 0.12% per year, which is relatively low compared to other quality factor ETFs. The fund also engages in securities lending, which can help offset some costs for investors.

Table 1: ETF Information

Investment strategy

JQUA employs a rules-based, passive investment approach that selects constituents from the Russell 1000 Index — a universe of approximately 1,000 of the largest US-listed companies by market capitalisation. The fund's underlying index identifies higher-quality companies by evaluating each stock across three quality dimensions:

1. Profitability — measures how efficiently a company generates profit relative to its assets and equity.
2. Earnings Quality — assesses the sustainability and reliability of reported earnings, distinguishing companies whose profits are backed by real cash flows from those relying on accounting adjustments.
3. Solvency / Financial Risk — assesses balance sheet strength and a company's ability to meet its financial obligations.

Stocks that score most highly across these three dimensions within each sector are selected and weighted to form the portfolio.

One key feature of JQUA is that it stays sector neutral. Instead of just picking the highest-quality stocks across the whole market, it follows the sector weights of the Russell 1000 and then selects quality names within each sector. In other words, it doesn’t take big bets on any industry. Each sector is represented in line with the Russell 1000, rather than being intentionally overweighted.

Because of this, performance is mainly driven by the quality factor rather than sector positioning. During economic downturns, this tends to make the portfolio more resilient, since the quality screen systematically excludes companies with weaker fundamentals that are most vulnerable during downturns. As a result, drawdowns are often less severe compared to the broader Russell 1000.

Holdings and sector allocation

JQUA’s portfolio, which holds 331 stocks, is well diversified. The largest position, Micron Technology Inc as of 28 May 2026, makes up just 2.71% of the fund, while the top 10 holdings together account for about 20.1% of total assets.

Table 2: Top 10 Holdings

Table 3: Sector Allocation

True diversification

JQUA's top holding represents only 2.71% of the portfolio, and the top 10 holdings collectively account for approximately 20.1% of total assets. This level of diversification is rare among quality ETFs — peers such as QUAL (iShares MSCI USA Quality Factor ETF) and FQAL (Fidelity Quality Factor ETF) have top 10 concentrations of 41.04% and 42.28% respectively as of 28 May 2026.

JQUA's diversification is by design — the index applies an individual security weighting mechanism to prevent any single stock from dominating the portfolio, mitigating stock-specific risk and providing more balanced exposure across quality companies.

If you must own US equities, own the best ones

While our house view on US equities remains underweight, we do not believe investors should sell out of the market entirely. Corporate earnings in the US are still holding up reasonably well, but valuations across the broader market remain stretched. The S&P 500 currently trades at around 22.3 times forward earnings, above our fair value estimate of 20 times. That premium is being maintained at a time when higher energy prices are pressuring margins, tariffs are raising costs, and the Fed has limited room to cut rates. Relative to the US, Asian markets offer similar growth prospects at more attractive valuations.

For investors who continue to maintain US equity exposure, particularly those with long-term or structural allocations, we believe quality is the right positioning in the current environment. JQUA provides systematic exposure to companies with strong balance sheets, stable earnings, and lower leverage, while avoiding unintended sector concentration. Combined with its lower drawdown profile and low expense ratio of 0.12% per annum, it offers a more resilient way to stay invested in US equities.

Declaration:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a NIL position in the abovementioned securities.