FLQM: A Growth-Driven Mid-Cap ETF Poised for Long-Term Gains

In a market increasingly defined by volatility and yield-hungry investors, the Franklin U.S. Mid Cap Multifactor Index ETF (FLQM) presents a compelling opportunity to capture growth and income through a disciplined, multi-factor strategy. While its recent dividend yield of 1.35% may seem modest, the ETF's robust 10.83% annual dividend growth over five years signals a fund primed to outpace inflation and peer benchmarks. Combined with its improving net flows and factor-driven edge over traditional mid-cap ETFs, FLQM offers a strategic buy for investors looking beyond short-term market noise.

The Dividend Case: Growth Over Yield

FLQM's most recent dividend payment on March 28, 2025, of $0.108 per share marked the latest step in its steady ascent. While its current yield lags behind peers like XMHQ (5.22%), the ETF's 10.83% average annual dividend growth rate since 2020 is a standout feature. For long-term holders, this growth translates into meaningful income over time. For instance, investors who bought shares at $27.56 five years ago now enjoy a 2.61% yield on cost—a figure that grows as dividends rise.

This focus on growth aligns with FLQM's multi-factor strategy, which prioritizes quality and value over high-yield traps. By targeting mid-cap firms with strong balance sheets and undervalued metrics, FLQM avoids the pitfalls of overleveraged or declining companies that often drag on dividend sustainability.

Valuation Advantages: Cost Efficiency Meets Risk Management

Despite its 0.30% expense ratio—higher than pure index funds like IJH (0.05%)—FLQM's factor tilt delivers superior risk-adjusted returns. Key metrics:
- Sharpe Ratio: 0.24 vs. XMHQ's -0.20 (higher = better reward-to-risk).
- Sortino Ratio: 0.35 vs. XMHQ's -0.26 (measures downside risk).

These metrics reflect FLQM's low volatility focus, which has kept its beta at 1.0—neutral to market moves—and its standard deviation under control. Meanwhile, its 10-year net inflows of $1.39 billion signal investor confidence in its strategy, even as peers like SPMD and IJH dominate liquidity rankings.

The Multi-Factor Edge: Quality and Value in a Chaotic Market

FLQM's strength lies in its LibertyQ Index, which blends four factors: quality, value, momentum, and low volatility. While quality and value dominate (prioritizing firms with high ROE, stable earnings, and undervalued P/E ratios), momentum and low volatility ensure the portfolio adapts to market shifts.

• Sector Allocation: 22% Industrials, 16% Finance, and 13% Tech Services—sectors with secular growth tailwinds.
• Holdings: Top names include Kroger (KR) and Cencora (COR), reflecting a focus on large mid-caps with scale and resilience.

This approach has delivered 13.79% annualized returns over five years, outperforming both its category and the broader mid-cap segment.

Addressing Concerns: Liquidity and Yield Trade-Offs

Critics will note FLQM's average daily volume of ~200K shares—modest compared to SPMD's 2 million—but this is manageable for most retail investors. The ETF's 98.5% payout consistency over its history and improving net flows ($929M over 12 months) suggest it's gaining traction.

The lower yield is a valid trade-off for growth-focused investors. FLQM's 1.35% yield is offset by its dividend growth trajectory and the 2.61% yield on cost for five-year holders. For income seekers, pairing FLQM with higher-yielding peers like XMHQ could create balance.

Why Buy FLQM Now?

• Market Headwinds? FLQM's low volatility tilt and quality focus shield it from cyclicality.
• Factor Outperformance: Multi-factor ETFs outperformed pure index funds in 8 of the past 10 years.
• Cost Efficiency: While not the cheapest, its 0.30% fee is justified by factor-driven outperformance.

Final Verdict: A Long-Term Winner

FLQM isn't a high-yield play, but it's a strategic bet on mid-cap resilience. Its dividend growth, factor-driven edge, and improving net flows position it as a top pick for investors with a 3-5 year horizon. With the S&P MidCap 400 trading near multi-year lows and interest rates stabilizing, now is the time to lock in exposure to a fund designed to thrive in uncertain markets.

Action Item: Add FLQM to your portfolio at current prices—its multi-factor mix and growth trajectory make it a rare mid-cap ETF worth holding for the long haul.

Disclosure: This article is for informational purposes only. Consult a financial advisor before making investment decisions.