Research > ETFs > ETF / ETP Commentary > 

Feast on Quality With Vaunted SPHQ

After junkier stocks led the cyclical value rally earlier this year, quality stocks are getting a second look, and that has positive implications for exchange traded funds, such as the Invesco S&P 500 Quality ETF (SPHQ A).The truth is, quality stocks rarely go out of style. After all, what’s not to like about stocks with impressive return on equity, accruals ratio, and financial leverage ratio traits — the metrics employed by the S&P 500 Quality Index, SPHQ’s underlying benchmark.That straightforward approach is relevant to investors because more than any other investment factor, there’s fluidity in how the investment community views quality. With SPHQ, investors gain an accessible, easy-to-understand approach.“Quality metrics are popular in the practitioner investment community, but no standard definition for the quality factor has been agreed on. In contrast, factors such as value and size have clear and accepted definitions. Although an extensive literature is dedicated to a few specific facets of quality, certain facets used in practitioner definitions have been only minimally explored in the academic literature,” according to a paper in the Financial Analysts Journal authored by Jason Hsu, Vitali Kalesnik, and Engin Kose.SPHQ an Exclusive ClubAs noted above, SPHQ tracks a benchmark that’s an offshoot of the S&P 500. That doesn’t mean investors that can buy an S&P 500 index fund and get a heaping dose of quality stocks. Actually, the opposite may be true because SPHQ is exclusive territory, being home to just 102 of the 500-plus S&P 500 members.Interestingly, a case can be made that quality, though it’s an individual factor, is actually a multi-factor concept.“Leading quality index products provide a collection of heterogeneous attributes linked by the theme of financial and accounting quality. No evidence exists that these variables proxy for a unique homogeneous source of risk or a single anomaly. Therefore, quality indexes are more appropriately interpreted as multifactor portfolios whose primary commonality is that they are constructed mostly from the less well-known and less vetted company characteristics,” note Hsu, Kalesnik, and Kose.What the researchers mention isn’t surprising. Quality is often conflated with low volatility and a look at SPHQ’s lineup reveals nearly equal distribution among growth and value equities.Given the murkiness surrounding quality’s definition, some investors may find it easier to focus on sector-level quality. SPHQ obliges. For example, the fund is lightly allocated to energy and real estate names — two capital-intensive groups. Conversely, the Invesco fund allocates over 37% of its weight to tech stocks.For more news, information, and strategy, visit the ETF Education Channel.

Performance data shown is past performance and is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. Yield and return will vary, therefore you have a gain or loss when you sell your shares. For standard quarterly performance, go to the fund's Snapshot page by clicking on the ETF/ETP's symbol.

ETFs may trade at a premium or discount to their NAV and are subject to the market fluctuations of their underlying investments.

For iShares ETFs, Fidelity receives compensation from the ETF sponsor and/or its affiliates in connection with an exclusive long-term marketing program that includes promotion of iShares ETFs and inclusion of iShares funds in certain FBS platforms and investment programs. Please note, this security will not be marginable for 30 days from the settlement date, at which time it will automatically become eligible for margin collateral. Additional information about the sources, amounts, and terms of compensation can be found in the ETF's prospectus and related documents. Fidelity may add or waive commissions on ETFs without prior notice. BlackRock and iShares are registered trademarks of BlackRock, Inc. and its affiliates.

FBS receives compensation from the fund's advisor or its affiliates in connection with a marketing program that includes the promotion of this security and other ETFs to customers ("Marketing Program"). The Marketing Program creates incentives for FBS to encourage the purchase of certain ETFs. Additional information about the sources, amounts, and terms of compensation is in the ETF's prospectus and related documents. Please note that this security will not be marginable for 30 days from the settlement date, at which time it will automatically become eligible for margin collateral.

News, commentary (including "Related Symbols") and events are from third-party sources unaffiliated with Fidelity. Fidelity does not endorse or adopt their content. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from their use.

Any data, charts and other information provided on this page are intended to help self-directed investors evaluate exchange traded products (ETPs), including, but limited to exchange traded funds (ETFs) and exchange traded notes (ETNs). Criteria and inputs entered, including the choice to make ETP comparisons, are at the sole discretion of the user and are solely for the convenience of the user. Analyst opinions, ratings and reports are provided by third-parties unaffiliated with Fidelity. All information supplied or obtained from this page is for informational purposes only and should not be considered investment advice or guidance, an offer of or a solicitation of an offer to buy or sell a particular security, or a recommendation or endorsement by Fidelity of any security or investment strategy. Fidelity does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating ETPs. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from their use. Determine which securities are right for you based on your investment objectives, risk tolerance, financial situation and other individual factors and re-evaluate them on a periodic basis.

Before investing in any exchange traded product, you should consider its investment objective, risks, charges and expenses. Contact Fidelity for a prospectus, offering circular or, if available, a summary prospectus containing this information. Read it carefully.