Use XMHQ, XSHQ to Fill Gaps in Quality SMID-Cap Exposure

Invesco has two funds in its suite of factor ETFs providing quality exposure down the cap spectrum.

Many investors may be missing out on mid- and small-cap companies. To fill these gaps in exposure, investors can look to the Invesco S&P MidCap Quality ETF (XMHQ) and the Invesco S&P SmallCap Quality ETF (XSHQ).

As investors have increasingly turned to quality ETFs due to market uncertainty, XSHQ and XMHQ have seen sizable inflows. XMHQ has seen $1.7 billion in net flows year to date through December 19, and XSHQ has accreted $59 million during the same period.

Comparing Quality ETFs Down the Cap Spectrum

The Invesco S&P 500 Quality ETF (SPHQ) is a fund giant with $6.8 billion in assets under management. The fund comprises 100 companies from the S&P 500 that have impressive quality scores. These scores are calculated based on three fundamental measures: return on equity, accruals ratio, and financial leverage ratio.

SPHQ includes many mega caps and household names, such as Microsoft (MSFT) and Apple Inc. (AAPL).

In comparison, XMHQ tracks an index that includes the 80 securities in the S&P Midcap 400 Index that have the highest quality scores. These scores are calculated using the same proprietary factors as SPHQ. The fund has grown tremendously in 2023 and now has $2.4 billion in assets under management.

Names in XMHQ include Manhattan Associates Inc (MANH) and Toro Company (TTC).

XSHQ, the newest and smallest of the three funds, launched in 2017 and has $99 million in assets. The fund is composed of 120 securities in the S&P SmallCap 600 Index that have the highest quality score, calculated in the same way as SPHQ and XMHQ.

XSHQ includes names such as SM Energy Company (SM) and Mueller Industries Inc. (MLI).

The quality factor introduces sector tilts to a portfolio. Compared to the cap-weighted S&P 500, SPHQ overweights IT, energy, and consumer staples, and underweights financials, consumer discretionary, and communications, as of December 30.

SPHQ charged 15 basis points, XMHQ charges 25 basis points, and XSHQ charges 30 basis points.

For more news, information, and analysis, visit the Innovative ETFs Channel.