The second best-performing S&P 500 factor in August, quality ETFs are currently having a moment.
The popular Invesco S&P 500 Quality ETF (SPHQ) has seen strong inflows recently, accreting $319 million in net flows in one month. Year to date, the $6 billion fund has hauled in $1.5 billion year to date,
While SPHQ is a great way to enhance portfolios, investors should not forget about the quality ETFs available down the cap spectrum.
“When advisors think of high-quality stocks, they tend to consider large caps,” Todd Rosenbluth, head of research at VettaFi, said. “However, focusing on companies with strong balance sheets and other favorable fundamental attributes matters a lot with smaller companies. A quality tilt can reduce the risks of investing in less established companies.”
For quality exposure to mid and small-cap companies, investors can look to Invesco S&P MidCap Quality ETF (XMHQ) and the Invesco S&P SmallCap Quality ETF (XSHQ).
Comparing Invesco’s Quality Lineup
SPHQ comprises 100 companies from the S&P 500 that have impressive quality scores. These scores are calculated based on three fundamental measures: return on equity, accruals ratio, and financial leverage ratio.
SPHQ includes many mega caps, such as Microsoft (MSFT) and Apple Inc (AAPL). Conversely, XMHQ provides exposure to the mid-cap space.
XMHQ has been rising in popularity in recent months. The fund has seen $139 million in one-month net flows, bringing year-to-date flows to $727 million.
XMHQ tracks an index that includes the 80 securities in the S&P Midcap 400 Index with the highest quality scores, calculated using the same proprietary factors as SPHQ. The fund has $1.3 billion in assets under management.
Names in XMHQ include Manhattan Associates Inc (MANH) and Toro Company (TTC).
XSHQ is the smallest of the three — in terms of its cap size exposure and assets under management ($49 million). The fund comprises 120 securities in the S&P SmallCap 600 Index that have the highest quality score, commutated in the same way as SPHQ and XMHQ.
XSHQ includes names such as SM Energy Company (SM) and Mueller Industries Inc (MLI).
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