ETFs Focus on Quality Companies with High Profitability

The Morningstar analyst also mentioned iShares Russell Top 200 Growth Index (NYSEArca: IWY), which “offers an even stronger quality tilt than VIG, but its holdings trade at richer valuations, which may partially offset the benefit.”

IWY holds assets of about $407 million and charges an expense ratio of 0.20%. The ETF’s tracking index selects from the largest 200 U.S. companies with higher price-to-book ratios and higher forecasted growth.

Finally, Bryan highlights PowerShares S&P 500 High Quality (NYSEArca: SPHQ) as an ETF that gives concentrated exposure to profitable companies.

“It invests in companies from the S&P 500 Index with above-average growth and stability of earnings and dividends over the most recent 10 years,” he said. “Firms that score well on these metrics also tend to enjoy better than average profitability. Over the past year, the fund’s holdings posted an average return on invested capital of 14.9%.”

SPHQ has an expense ratio of 0.29%

PowerShares S&P 500 High Quality