Midmonth ETF Focus - US
Finding Quality During The Storm
The US stock market is currently experiencing significant volatility, with the S&P 500 entering correction territory, down 10.1% from its recent peak. This downturn has been primarily driven by President Trump's aggressive trade policies, including threats of new tariffs on European Union imports and a broader set of tariffs set to take effect in April. The market's reaction reflects growing concerns about the impact of these policies on corporate and consumer confidence, potentially leading to an economic slowdown.
Despite the current turbulence, this market correction presents an opportunity for long-term investors to focus on quality companies. High-quality stocks, characterized by strong fundamentals, consistent cash flows, and durable competitive advantages, have historically demonstrated greater resilience during market downturns. These companies tend to recover faster from market corrections, with one study showing that top-quality stocks rebounded in just 148 days compared to 958 days for lower-quality stocks. By prioritizing investments in quality companies with robust balance sheets and stable earnings, investors can potentially navigate the current uncertainty more effectively and position themselves for stronger long-term performance. Here are a few US ETFs to capitalise on this opportunity.
Source: State Street, Vanguard, Invesco, JPM, Bloomberg
The Verdict
With the S&P 500 heavily concentrated in the "Magnificent 7" mega-cap tech stocks, which have recently underperformed, investors may benefit from diversifying into other high-quality companies to balance their portfolios. The Invesco S&P 500 Quality ETF (SPHQ) emerges as a compelling option, delivering a strong 1-year total return of 10.4%, outperforming the broader VOO's 8.3%. This reflects its focus on quality stocks with robust fundamentals and defensive characteristics.
SPHQ also demonstrates solid risk-adjusted performance, with a 3-year Sortino Ratio of 0.56, indicating better downside protection compared to broader market ETFs. Its fund size of $11.5 billion ensures stability, while an average daily trading volume of $68 million offers sufficient liquidity for most investors. With a proven track record spanning two decades and top holdings like Johnson & Johnson, Visa, and Mastercard, SPHQ provides an attractive blend of resilience and growth potential for navigating the current market environment.