Cash-flow quality returned 42% while QUAL returned 17%

Two funds that both promise U.S. quality stocks share 6% of their weight. One spent the 12 months through Monday, September 21, in memory chips, cash-generating software and energy refiners. The other spent them in Microsoft, Apple and Nvidia. That gap, not a single factor premium, is what the year established.

The VictoryShares Free Cash Flow ETF BVFLO, a 52-stock large-cap book screened for free cash flow, cheapness and growth, returned 42.4%. The iShares MSCI USA Quality Factor ETF AQUAL, which holds large- and mid-cap stocks picked for high return on equity, stable earnings and low debt, returned 16.7%. The S&P 500 fund ASPY returned 17.8%. Across 27 graded products in US Quality Screen, the median 12-month total return was 15.2%, 2.6 percentage points behind ASPY.

AQUAL still holds $47.9 billion of the category’s $114.1 billion. BVFLO, listed in June 2023, is already third at $13.7 billion. Holders pulled $14.92 billion from AQUAL over the 12 months through September 14 and $6.07 billion year to date. BVFLO took in $6.52 billion over 12 months through September 18. The classic screen still holds the assets; the money has been leaving it all year.

Two books under one label

AQUAL is 40% technology. Microsoft is 7.7%, Apple 7.3%, Nvidia 6.5%. The top 10 names are 45% of the fund. That is quality as profitable mega-cap America.

BVFLO is 34% technology, 22% energy and 20% healthcare. Micron, Sandisk and Marathon Petroleum lead a book that also holds Adobe, Exxon Mobil, Centene and Phillips 66. Victory’s index ranks large-caps on expected free-cash-flow yield, then keeps the 50 with the highest growth scores and excludes financials and REITs. The two funds share 13 stocks. Exxon is the largest name they both own.

The Invesco S&P 500 Quality ETF ASPHQ, at $18.6 billion the category’s second-largest fund, is a third construction. It tracks the 100 S&P 500 stocks with the highest quality scores on return on equity, accruals and leverage, reconstituted in June and December. Mastercard, Apple and Visa are the top three. GE Vernova, Lam Research, Costco, Netflix, Cisco and Sandisk follow. Microsoft, Nvidia and Meta Platforms do not appear among the leaders. AQUAL and ASPHQ share 46 names and 39% of their weight, and they still are not substitutes.

JPMorgan’s U.S. Quality Factor ETF AJQUA sits closer to AQUAL in spirit and farther in construction: 308 stocks, Apple at 2.1% the largest line, a 19.5% top 10. It returned 20.1% over the 12 months, 3.4 percentage points more than AQUAL, at a 0.12% fee against 0.15%.

Returns are total returns through Monday, September 21. The quarter runs from June 30. Year to date runs from December 31, 2025. Cash-flow screens sit in a different column of results from the ROE screens, on every window.

Not every cash-flow definition won. Invesco’s Nasdaq Free Cash Flow Achievers ETF CQOWZ, which requires 11 years of positive free cash flow and holds Nvidia at 10% in a 67% technology book, returned -0.4% over 12 months, the weakest result among the 27 graded funds. It is a $10 million product. Over those 12 months the current BVFLO book is led by Sandisk and Micron; Marathon Petroleum is a distant third.

From March 31 through June 30, the Energy Select Sector SPDR Fund XLE fell 12.7%. BVFLO returned 16.1% in the same window, against 14.6% for AQUAL and 15.1% for ASPY.

The quarter the screens stopped rhyming

From June 30 through Monday, the median quality fund returned 2.0%. ASPY returned 3.8%.

Chip-equipment stocks that both large quality indexes hold fell together. From June 30 through Monday, Lam Research fell 30%, Applied Materials 36% and KLA 39%. ASPHQ holds all three near the top of the book and holds Sandisk, which fell 22%, at 3.5%. It does not hold Microsoft, Meta or Nvidia in size to offset them. Microsoft rose 35% in the same window, Meta 32%, Apple 17%. Those three are 19% of AQUAL. That is why one A-grade quality fund was slightly positive and the other was down almost 6%.

BVFLO was not in that argument. Marathon Petroleum rose 57%, Phillips 66 rose 55%, Accenture 51%, Salesforce 51%. Energy is 22% of the fund against 3.4% of AQUAL. The quarter paid refiners and cash-flow software, not the ROE screen’s semiconductor-equipment overweight.

AJQUA returned 3.3%, next to 3.8% for ASPY. Palantir is 1.2% of the fund; Microsoft and Meta sit at about 2% each.

Smaller stocks, same split

The Invesco S&P MidCap Quality ETF BXMHQ, $5.91 billion, returned 8.5% over 12 months. The Invesco S&P SmallCap Quality ETF BXSHQ returned 6.0%, and -4.6% in the quarter. The VictoryShares Small Cap Free Cash Flow ETF CSFLO returned 31.9% over 12 months and 12.7% in the quarter, a $1.00 billion fund that charges 0.56%.

etf.net grades each fund only against others that make the same promise. Four funds carry an A: AQUAL, AJQUA, AFQAL and ASPHQ, the classic large-cap quality trackers. AJQUA is first on the cost pillar, which measures the net expense ratio and nothing else. BVFLO is a B. It charges 0.44% against a category median of 0.38%, and it is the fund that returned 42%. The grade is not a return forecast. It measures the product, not last year’s return, and the product that won the year is the more expensive cash-flow book, not the ROE index that still holds the most assets.

The four largest funds hold 82% of category assets. No new fund joined the 27-product graded field in the quarter. Neuberger Quality Select NQLT and the Qualivian Focus Fund QFF listed in July as high-conviction active funds; they sit outside this screen. The field is 27 funds, 4 A, 10 B, 7 C, 4 D and 2 F, with five products capped for small asset bases. The iShares Core U.S. Aggregate Bond ETF AAGG returned -0.2% over the same 12 months, so the category participated in the equity year rather than acting as a bond substitute.

If you hold AQUAL, you held Microsoft, Apple and Nvidia through a year that paid a market-like result, then a quarter in which those three names had to offset a collapse in chip equipment. If you hold ASPHQ, you held payments, industrials and the same equipment stocks without the platforms, and the quarter was a 5.7% hole in an otherwise 17% year. If you hold BVFLO, you owned Sandisk, Micron and a 22% energy sleeve rather than that debate, and you finished 26 percentage points ahead of the category giant. The shared label did not make them the same investment.