SPHQ: Search for quality in the S&P 500 (NYSEARCA: SPHQ)

Stock Market


The choice of excellent quality to increase customer satisfaction.  Quality assurance management and control for products or services.  Concept with QA manager

NicoElNino / iStock via Getty Images

This dividend ETF article series aims to evaluate products in relation to the relative past performance of their strategies and quality benchmarks of their current portfolios. As possessions and weights change over time, I post updated reviews when needed.

SPHQ strategy and portfolio

The Invesco S&P 500 Quality ETF (SPHQ) has been following the S&P 500 Quality Index since 12/6/2005. It has a payout ratio of 1.24% and an expense ratio of 0.15%. The fund invests in the 100 S&P 500 companies with the highest quality score, based on return on equity, accrual ratio and financial leverage ratio. It is rebalanced and reconstituted semi-annually..

The top 10 holdings, listed below, weigh 43.3% of asset value. None of them weigh more than 5.07%, so the risk associated with individual stocks is limited.

Typist

Name

Weight%

EPS growth% TTM

P / E TTM

P / E fwd

Yield%

AAPL

Apple Inc.

5.07

62.83

28.62

28.43

0.51

V

Visa Inc.

4.96

26.04

38.70

32.05

0.66

BAC

Bank of America Corp.

4.92

90.69

13.52

14.85

1.74

JPM

JPMorgan Chase & Co.

4.89

72.70

9.94

13.47

2.62

MA

Mastercard Inc.

4.71

37.42

43.64

36.66

0.51

MSFT

Microsoft Corp.

4.70

39.98

32.55

32.61

0.81

PFE

Pfizer Inc.

4.45

118.17

15.73

12.59

3.02

WFC

Wells Fargo & Co.

3.76

1124,32

11.32

14.41

1.78

ADBE

Adobe Inc.

3.16

-7.60

51.25

37.26

0.00

ABT

Abbott Laboratories

2.69

57.44

32.84

26.62

1.45

The heaviest sector is technology (35.07%), followed by finance (25.67%). Healthcare comes third with 12.79%, then other sectors are below 10%.

SPHQ sectors

SPHQ sectors (Graph: author with Fidelity data)

SPHQ is cheaper than SPY in terms of common ratios (see next table). This is due in part to the weight of finances, whose valuation ratios are low and also less reliable. As a reference, the Financial Select Sector SPDR Fund (XLF) has a P / E of 11.6.

SPHQ

Spy

P / E TTM

18.22

23.05

Price / Book

3.97

4.3

Price / Sales

2.84

3

Price / cash flow

15.6

17.22

Data: Fidelity

Performance

Since its inception in December 2005, SPHQ has left SPY with about 1.3 percentage points in annualized returns, with a slightly higher risk in withdrawal and volatility (standard deviation of monthly returns).

Total return

Annual Yield

Withdrawal

Sharp relationship

Volatility

SPHQ

300.58%

8.97%

-57.83%

0.58

15.32%

Spy

385.52%

10.28%

-55.19%

0.67

14.91%

The following graph shows the equity value of $ 100 that has been invested in SPHQ and SPY since its inception.

SPHQ vs SPY

SPHQ vs SPY (graph by author)

SPHQ slightly but consistently underperformed SPY.

Compare SPHQ with a referral strategy based on dividend and quality

In previous articles I have shown how three factors can help reduce the risk in a dividend portfolio: return on assets, Piotroski F-score and Altman Z-score.

The following table compares SPHQ since its inception with a subset of the S&P 500: stocks with a dividend yield above the average of their respective indices, an above-average ROA, a good Altman Z-score and a good Piotroski F- score. It is rebalanced annually to make it comparable to a passive index.

Total return

Annual Yield

Withdrawal

Sharp relationship

Volatility

SPHQ

300.58%

8.97%

-57.83%

0.58

15.32%

Large cap reference subset

667.40%

13.45%

-39.93%

0.88

14.54%

Past performance is not a guarantee of future returns. Data source: Portfolio123

SPHQ is more than 4 percentage points in annualized returns behind the S&P 500 dividend and quality subset. However, SPHQ performance is real, while subset performance is hypothetical. My core portfolio contains 14 stocks selected in this subset (more information at the end of this post).

Scan SPHQ with quality statistics

SPHQ holds 100 shares, of which only 3 are risky shares with respect to my metrics. In my ETF reviews, risky stock companies with at least 2 red flags are below: bad Piotroski score, negative ROA, unsustainable payout ratio, bad or questionable Altman Z score, excluded finances and real estate where these benchmarks are less relevant. Here, risky stocks have very small weights and are negligible in asset value.

According to my calculation of the weighted quality metrics reported in the following table, SPHQ quality is significantly better than the metric. ROA is especially good.

Altman Z-score

Piotroski F-score

ROA% TTM

SPHQ

5.08

6.63

13.48

Spy

3.75

6.48

7.38

Take away

SPHQ follows a quantitative strategy based on a quality ranking using return on equity, accruals and financial leverage. An evaluation based on other measures (Piotroski F-score, Altman Z-score and return on assets) confirms the high quality of SPHQ portfolio. On top of that, its exposure to risky stocks with respect to my criteria is below 1%. On the performance side, it has left SPY with 1.3 percentage points in annualized returns since its inception. However, it has beaten the benchmark over the past 12 months (18.2% vs. 15.7%). SPHQ is a great product for investors looking for a passive capital allotment in high quality US equities. It has a 5-star rating at Morningstar. For transparency, I have a passive allotment in quality-oriented ETFs (SPHQ is not part of it) and a dividend and quality active portfolio of 14 stocks (“Stability” model).



Source link

Leave a Reply

Your email address will not be published.