Focusing On Quality With ETFs in September

August was not the best of months for stocks and was noted earlier this week, September's reputation is not stellar, either. The S&P 500's nearly three percent loss on Tuesday certainly qualifies as an inauspicious start to the ninth month of the year. 

 

Investors that insist on remaining long stocks and those looking to do some value hunting amid global equity market turbulence might do well to focus on the quality factor, the investment factor that serves as the backbone for the PowerShares S&P 500 High Quality Portfolio SPHQ. The $487.8 million SPHQ tracks the S&P 500 High Quality Rankings Index, which holds “stocks reflecting long-term growth and stability of a company's earnings and dividends,” according to PowerShares

 

That is a benchmark whose constituents earn an S&P Capital IQ Quality Ranking of A- or above. These companies have exhibited relatively strong earnings and dividend growth records over the past 10 years. The S&P Capital IQ Quality Ranking is a quantitatively derived risk considerations metric used in our ETF ranking process, but is just one of 10 inputs that also include S&P Capital IQ STARS and S&P Capital IQ Qualitative Risk Assessments generated by our equity analysts. S&P Dow Jones Indices, which runs SPHQ's underlying index, operates independently from S&P Capital IQ,” said S&P Capital IQ in a new research note. 

 

S&P Capital IQ rates SPHQ overweight, its highest rating for ETFs, and named the fund its focus ETF for September.

 

Home to 133 stocks, SPHQ's quality emphasis results in, perhaps not surprisingly, a scant energy sector allocation of less than 1.2 percent. That is the ETF's smallest sector weight. Industrials, another laggard group, are SPHQ's larges sector weight at 26.8 percent while consumer staples and discretionary names combine for about 36.6 percent of the fund's weight.

 

According to Sam Stovall, U.S. equity strategist for S&P Capital IQ, S&P 500 index constituents with above-average S&P Capital IQ Quality Rankings had a beta of 0.9, while those companies with below-average Quality Ranking (B or below) had a beta of 1.3 -- and 1.1 for those with average rankings (B+),” said S&P Capital IQ.

 

Translation: SPHQ should be less volatile than the broader market when volatility ticks higher. And that has led to slightly better performance as SPHQ has outpaced the S&P 500 by 86 basis points on a year-to-date basis.

 

Although SPHQ's dividend yield of 2.05 percent is slightly below the yield on 10-year U.S. Treasurys, the ETF is an avenue to dependable dividend raisers as over a quarter of SPHQ have dividend aristocrats status, meaning those stocks have boosted payouts for at least 25 consecutive years.

Posted In: Long IdeasNewsBroad U.S. Equity ETFsIntraday UpdateMarketsTrading IdeasETFs

Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on Bankrate.com. The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.

All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the Bankrate.com rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.

Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.

Rate collection and criteria: Click here for more information on rate collection and criteria.