Investors wondering when growth stocks will revert to their old ways or when value stocks return to the shape seen earlier this year may want to focus elsewhere. The quality factor is an excellent starting point.
Just look at the Invesco S&P 500 Quality ETF (NYSEArca: SPHQ). After steadily rising for several months, the SPHQ is up 19.33% year-to-date through August 3 – a 134 basis point advantage over the S&P 500.
While the impressive SPHQ run in 2021 may make some investors think they missed the quality boat, some market observers believe the postman’s run is just beginning. This could be a sign that the SPHQ is a credible idea in the short and medium term.
“While investments that benefit from widespread growth, such as cyclical and value sectors, still have room, we believe it is time to add quality stocks to the portfolio – or companies that do. will benefit once the growth peak has passed. ” noted Gargi Chaudhuri, head of iShares investment strategy for the Americas, at BlackRock, in an interview with Bloomberg.
Keep it simple with SPHQ
Although quality is a well-known investment factor, its definition varies among ETF issuers and index providers.
The $ 3.1 billion SPHQ tracks the S&P 500 quality index. Within this benchmark, quality is assessed on the basis of return on equity, regularization ratio and leverage ratio, according to Invesco.
Another advantage of the SPHQ is that it does not force investors to choose between growth and value. Stocks with the growth designation represent 32% of the fund’s list while value stocks represent over 30%. It’s a solid separation between these two factors. The overall economic cycle is added to the case of the SPHQ.
“The robust reboot will continue to support cyclical value-driven companies, but financial markets are far-sighted, and we believe some of the early-cycle investment opportunities may have already occurred, particularly in the United States. “Chaudhuri said.
Remembering that dividends are often seen as a quality trait, SPHQ allocates more than 62% of its combined weight to technology, financial services and healthcare, three of the main drivers of S&P dividend growth. 500. This is something to consider at a time when S&P 500 payouts are expected to hit new highs, perhaps as early as this quarter. SPHQ’s 1.22% 12-month rolling payout rate leaves enough room for growth going forward.
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The opinions and forecasts expressed herein are solely those of Tom Lydon and may not come to fruition. The information on this site should not be used or interpreted as an offer to sell, a solicitation of an offer to buy or a recommendation for any product.