It’s obvious that with the current market landscape, amidst Covid-19 and a forthcoming presidential election, navigating through the capital markets is like rock climbing. As in any dangerous activity, you’ll want a safety line and to seek out quality investments to provide that element of safety
OK, so a portfolio needs quality. The question now is how do investors go about getting it?
“When it comes to evaluating which companies may flourish and which may struggle following the disruption of Covid-19, studying underlying business models is more revealing than reviewing traditional sectors,” a FT Adviser article said. “Conventional industry classifications were becoming less insightful as company business models have evolved.”
In addition, investors need to spot opportunities that will not only serve as quality plays now, but that can sustain for the long-term horizon. That’s especially the case now with the world still trying to wade through the mud known as the Covid-19 pandemic.
“Without a doubt, Covid-19 is a significant turning point and will have a long-term impact,” the article added. “Depending on when a vaccine comes to market and how widely it is adopted, Covid-19 is still likely to alter people’s behaviour for years to come, changing how consumers interact with companies.”
Rather than do all the necessary legwork, investors can look to exchange-traded funds (ETFs) from Invesco that address quality.
“For those of us at Invesco involved in ETF strategy, a quality company is one with strong cash flow and a healthy balance sheet,” an Invesco article said back in May, but is still as relevant as ever. “By this definition, quality is more concerned with a company’s financial position rather than earnings growth or valuation. One of the explanations for how the quality factor potentially rewards investors is this focus on financial health. Of course, these metrics (return on equity, cash flow generation and leverage) take time to analyze but can also provide general economic and industry insight, which can be of great value to investors.”
Here are a few funds from Invesco to consider:
- Invesco S&P 500 Quality ETF (SPHQ ): seeks to track the investment results of the S&P 500® Quality Index. In selecting constituent securities for the underlying index, the index provider calculates the quality score of each security in the S&P 500® Index, then selects the 100 stocks with the highest quality score for inclusion in the underlying index.
- Invesco S&P MidCap Quality ETF (XMHQ): seeks to track the investment results of the S&P MidCap 400® Quality Index. Strictly in accordance with its guidelines and mandated procedures, the index provider first calculates the quality score of each security in the S&P MidCap 400® Index.
- Invesco S&P SmallCap Quality ETF (XSHQ): seeks to track the investment results of the S&P SmallCap 600® Quality Index. S&P DJI weights each component stock of the underlying index by the total of its quality score multiplied by its market capitalization; stocks with higher scores receive relatively greater weights.