When the broader S&P 500 was down 7.2% between July 1 and September 1, not all related indices were hurt as poorly. Indeed, the S&P 500 High Quality Rankings Index was down just 5.3%. The High Quality index is a benchmark whose constituents earn an S&P Capital IQ Quality Ranking of A- or above. These companies have exhibited consistently strong earnings and dividend growth records over the past 10 years.
These companies include packaged foods & meats producer Hormel (HRL) footwear maker Nike (NKE) and aerospace & defense Lockheed Martin (LMT).
According to Sam Stovall, U.S. equity strategist for S&P Capital IQ, S&P 500 index constituents with above-average S&P Capital IQ Quality Rankings had a beta of 0.9, while those companies with below-average Quality Ranking (B or below) had a beta of 1.3 -- and 1.1 for those with average rankings (B+).
As of early September, from a sector perspective, the High Quality rankings index has relatively high exposure to industrials (27% of assets vs.10% for the S&P 500 index), consumer staples (19% vs. 10%), and consumer discretionary (18% vs. 13%). In contrast, there was limited stakes in financials (6% vs. 17%), information technology (6% vs. 20%), and energy (1% vs. 7%).
SPHQ's underlying index is rebalanced and reconstituted quarterly so no position garners a weighting greater than 1.5%, unlike the market-cap weighted S&P 500 Index.
PowerShares S&P 500 High Quality (SPHQ) tracks the aforementioned index as is the Focus ETF for September. Among more than 800 equity ETFs, SPHQ ranks favorably for a number of risk consideration factors as well as for having a tight/bid ask spread.