2026 may be marked as the year investors finally move away from mega-cap tech and growth stocks. It also represents the re-emergence of one of the market’s most important themes — quality.
Owning quality companies never really goes out of style. It may be in or out of favor with the markets at any given time, but the idea of filling your portfolio with companies that have healthy balance sheets, strong cash flow, and growing profits should be sustainable.
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During the last few years, the quality factor has performed particularly well at the top of many names. Invesco S&P 500 Quality ETF (NYSEMKT: SPHQ) There were seven interesting stocks. Not surprisingly, it was unable to keep up with it Nasdaq 100 Since the beginning of 2023, but it was much better than 2023 S&P 500 (SNPINDEX: ^GSPC). And it did it with less than 10% volatility.
All SPHQ return level data by YCharts
Given that more than 25% of this ETF’s portfolio is currently devoted to tech stocks (and has been for some time), it would make sense if we kept the Invesco S&P 500 Quality ETF a little behind.
Instead, this ETF is up more than 7% year-to-date (through February 25, 2026), ahead of a 1% return for the S&P 500 and a flat performance for the Nasdaq 100.
How is this fund performing as it was when mega-cap tech was both leading and lagging?
This ETF selects companies from the S&P 500 index based on three factors: return on equity (ROE), earnings ratio, and financial leverage ratio. Based on these metrics a quality score is calculated for each stock. Stocks with the highest quality score of 100 are included in the portfolio, and all components are weighted by the score.
If you look at the fund’s top 10 holdings from a year ago, it includes Meta platforms, Appl, Netflixand Nvidia All gain at least 4% weight. Today, Apple and Lam research The only technical names in the fund’s top 10 are. Meta, Netflix, and Nvidia are nowhere to be found.
what happened? Special selection methodology is somewhat of a black box. Is it possible that AI-related capex spending will drive these companies’ financial leverage ratios high enough to knock them off the index? It’s hard to say for sure, but it looks like the portfolio has adjusted itself well over the past 12 months.
