Although the consumer staples sector can at times be viewed as defensive, this isn’t always the case. Consumer staples holdings within the S&P 500 Quality Index include Costco and Walmart, which are both influenced by consumer spending.
Other key exposures rest in industrials (23.5%) and information technology (22.5%).
These two sectors have the ability to benefit from strong economic trends as well. Moreover, within information technology, the S&P 500 Quality Index holds Visa and MasterCard, with just over a combined 9.0% exposure.
Both of these companies can benefit from strong consumer spending via their transaction-based businesses, which facilitate consumer purchases.
One of the potential benefits of the quality factor is the selection of stocks that have strong balance sheets. In this case, the S&P 500 Quality Index selects stocks based on return on equity, leverage and earnings quality via accruals.
Investors interested in the quality factor may wish to consider the PowerShares S&P 500 Quality Portfolio, which tracks the S&P 500 Quality Index.
This article has been republished with permission from Invesco Powershares.