For most investors, simply investing in the S&P 500 has delivered strong returns over the past several years. Its high-tech concentration has kept investors in the themes that are leading the market higher.
But with inflation risks rising, consumer sentiment low, and GDP growth slowing, it’s time to evaluate whether the future can look like the past. Investing in broad-market ETFs, such as the Vanguard S&P 500 ETF (VOO +1.60%),has worked for a while.
But investors might need to be more selective going forward. Here’s one option for investors to consider.
It’s time to focus on quality
The one thing we’re very likely to keep seeing over the next 12 to 18 months is an artificial intelligence (AI)-fueled earnings and revenue boom. In Q1 2026, S&P 500 earnings grew by more than 28% year over year, the best number since 2021.
The next several quarters could look similarly strong. Full-year 2026 earnings growth is currently forecast at around 22%. 2027 could see another 15% earnings growth on top of that. In both years, the tech sector is likely to drive the gains.
Image source: Getty Images.
That means investors should be looking to upgrade their exposure to these earnings success stories. I’m not talking about adding a pure tech ETF because that’s where the biggest earnings growth is coming from. I’m talking about focusing more directly on these high-quality earnings growers — the companies with healthy balance sheets and the ability to grow in multiple economic environments.
That’s why I’m looking at the Invesco S&P 500 Quality ETF (SPHQ +2.25%). It targets three fundamental measures in its selection process: return on equity (ROE), the accruals ratio, and the financial leverage ratio. This helps weed out some of the weaker S&P 500 components and lean heavier into the leaders.
SPHQ: Performance and key metrics
| Metric | SPHQ | VOO |
|---|---|---|
| Expense ratio | 0.15% | 0.03% |
| Assets under management | $18.9 billion | $991.3 billion |
| Number of holdings | 100 | 505 |
| Three-year return (annualized) | 22.1% | 21.3% |
| Five-year return (annualized) | 14.3% | 13.4% |
| Top sectors | Tech (34%), industrials (23%), consumer staples (14%) | Tech (35%), financials (12%), communication services (11%) |
| Top holdings | LAM Research (4.9%), Apple (4.6%), GE Aerospace (4.5%) | Nvidia (7.9%), Apple (6.5%), Alphabet (6.5%) |
Data sources: Invesco, Vanguard.
The Invesco S&P 500 Quality ETF maintains the heavy tech exposure of the broader index, but it’s also more broadly diversified beyond that. The strong overweight to industrial and consumer staples stocks gives it a different risk/reward profile, but one that pairs nicely with traditional S&P 500 funds.
Enough economic wild cards are looming in the background right now that any sudden surprise could send the stock market lower at a moment’s notice. That’s especially the case for more financially vulnerable businesses.
NYSEMKT: SPHQ
Invesco Exchange-Traded Fund Trust – Invesco S&P 500 Quality ETF
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By focusing on the higher-quality ones, you accomplish two things. You get heavy exposure to the companies that are driving earnings and stock market growth right now. And you help insulate yourself from any eventual slowdown.
David Dierking has positions in Apple. The Motley Fool has positions in and recommends Alphabet, Apple, GE Aerospace, Lam Research, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
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