Few investors intentionally look for
that hold a plethora of stinky stocks, but it is reasonable to
say nearly all investors that use ETFs want funds that are backed
by strong holdings. Makes sense. After all, it is an equity-based
ETF's underlying holdings that are the ultimate determinants of
the fund's performance.
Investors looking to dodge volatility while gaining exposure
to a lineup chock full of high-quality names have no shortage of
options among ETFs. One fund to consider is the unheralded
PowerShares S&P 500 High Quality Portfolio (NYSE:
"According to Sam Stovall, S&P Capital IQ Chief Investment
Strategist, in 2013's 97 trading days through May 21, the S&P
500 rose or fell by 1% or more on a closing basis 10 times," said
S&P Capital IQ in a new research note.
"Since then, in only 17 trading days through 6/14, the market
chalked up 11 such days. Stovall notes that "volatility is a fact
of life when investing in equities" as since 1960, the S&P
500 fell by 1% or more in a single day (one day's close versus
the next day's close) an average 26 times per year, yet rose an
average 28 times per year. But by holding a basket of stocks that
have consistent earnings and dividend records, investors may be
able to benefit from those up days and yet not feel the pain as
much on down days."
Year-to-date and over the past 90 days, SPHQ has outpaced the
S&P 500. Along those lines, it may not be surprise that
S&P Capital IQ rates the $244.8 million ETF Overweight.
S&P has four-star ratings on three SPHQ holdings: Dow
component 3M (NYSE:
), Omnicom ((NYSE:
) and TXJ Cos. (NYSE:
). S&P notes that all of the ETF's top-10 holdings have
S&P Capital IQ Quality Rankings of A+, the highest ranking
Other top holdings in SPHQ include W.W. Grainger (NYSE:
), Walt Disney (NYSE:
) and Yum Brands (NYSE:
). W.W. Grainger is the ETF's largest holding with a weight of
1.3 percent, indicating the fund is well-balanced and not
excessively exposed to just a few stocks.
"In the last few years, a large number of rules-based ETFs
have been launched, including many that have garnered even
stronger investor attention than SPHQ, which now has
approximately $250 million in assets. However, we think SPHQ
offers a combination of attractive stocks that have historically
incurred limited volatility, in an ETF that trades with a tight
bid-ask spread of just $0.02," said S&P in the note.
At the sector level, SPHQ is overweight some sectors relative
the weightings of those groups in the S&P 500. Industrials,
consumer discretionary and consumer staples receive allocations
in SPHQ of almost 26 percent, 19.6 percent and 19.4 percent.
Those sectors combine for less than 33 percent of the S&P
SPHQ has a 30-day SEC yield of just 1.94 percent, but there is
room for dividend growth as the ETF is home to some consistent
dividend raisers including 3M, McDonald's (NYSE:
) and Procter & Gamble (NYSE:
). Additionally, SPHQ features some names that have recently and
noticeably stepped up their dividend games, including TXJ.
"While the stocks inside SPHQ have strong records of dividend
increases, investors should be mindful that dividend increases do
not occur in perpetuity. So we think looking at the underlying
holdings' earnings potential to see if there is room for dividend
growth is warranted," said S&P.
The ETF's underlying index, the the S&P 500 High Quality
Rankings Index, outperformed the S&P 500 by almost 250 basis
points and the Russell 3000 Growth Index by 600 basis points for
the 12-month period ending March 31,
according to PowerShares data
For more on ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
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