When most investors think about S&P 500 exposure, they picture owning the entire market. But what if you could filter that universe down to only the most financially sound companies? That’s the promise behind Invesco S&P 500 Quality ETF (NYSEARCA:SPHQ), a fund that screens for profitability, stability, and operational excellence rather than simply tracking market cap.
Built for Investors Who Want Quality Without the Guesswork
SPHQ serves one clear role in a portfolio: core equity exposure with a tilt toward companies that generate strong returns on capital and maintain consistent earnings. This isn’t a growth fund chasing momentum or a value play hunting bargains. It’s designed for investors who want S&P 500 participation but prefer businesses with proven profitability metrics over speculative bets.
The return engine here is straightforward. The fund screens 120 S&P 500 companies for return on equity, financial leverage, and earnings consistency—metrics that naturally favor businesses with pricing power and predictable cash flows. This methodology explains why payment processors dominate the top holdings, with Mastercard (NYSE:MA) and Visa (NYSE:V) combining for nearly 10% of the portfolio through their network effects and transaction volume growth.
Costco (NASDAQ:COST) rounds out the top holdings with its membership-driven business model that generates predictable revenue streams. The fund’s 0.15% expense ratio and 1.07% dividend yield make it cost-competitive while providing modest income.
Performance That Justifies the Quality Premium
The quality screen delivers measurable outperformance. Over the past five years, SPHQ returned 93.7% compared to the S&P 500’s 77.1%, proving that filtering for financial strength adds value over time.
This pattern continues in 2026, with the fund gaining 6.0% year to date through February 10, 2026 while the broader index rose just 1.5%.
Individual holdings demonstrate why the quality filter works. Mastercard beat earnings estimates in all four quarters of 2025, with the most recent quarter exceeding expectations by 12.3%. This consistency reflects the competitive moats that quality companies build through network effects and pricing power.
Costco’s 30.3% return on equity demonstrates how the quality screen identifies companies that efficiently convert shareholder capital into profits. Combined with 8.3% revenue growth, these metrics show why operational excellence matters more than top-line expansion alone.
The Tradeoffs You Accept
Quality comes with concentration risk. Technology and industrials represent 51% of holdings, meaning sector rotation away from these areas will hurt performance. The fund also underweights energy and real estate, limiting diversification during commodity rallies or REIT recoveries.
You’re also paying a slight premium versus plain vanilla S&P 500 funds, though 15 basis points remains competitive. Finally, during speculative market phases when unprofitable growth stocks surge, SPHQ will lag because it systematically avoids those names.
SPHQ works best as a core holding for investors who prioritize financial strength over maximum diversification, accepting sector concentration in exchange for businesses that consistently deliver earnings growth.
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