Despite some bouts of volatility and ongoing concerns about the Iran war, rising inflation, and volatile oil prices, the S&P 500 is on pace for another strong year. The index is nearly up 9% year to date, following three consecutive years of double-digit gains.
However, investors are starting to show signs of being more selective about what they invest in. Optimism about the potential of artificial intelligence (AI) used to be enough to send some stocks doubling in value. Today, investors want to see results. A big part of why Microsoft is down roughly 30% from its highs is concerns about capex overspending.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
In short, fundamentals matter again. That idea shows up clearly in the results of the Invesco S&P 500 Quality ETF (NYSEMKT: SPHQ). It’s outperforming the Vanguard S&P 500 ETF by around 9% so far in 2026. While investors are still in a mood to buy stocks, they’re leaning toward companies that are producing tangible results.
Why investors prefer quality stocks right now
There’s no question that large-cap tech stocks have been driving revenue and earnings growth. That’s why technology is still about a 33% weighting in this ETF.
But in the end, all that spending needs to result in a positive return on investment (ROI). Technological boom periods, such as the internet around 2000 or cybersecurity stocks in the mid-2010s, often feature “bust” periods where enthusiasm starts to wear off and growth rates level off. That’s not to say that this is imminent with AI stocks, but it’s also reasonable to think that this rally could use a breather.
The Invesco S&P 500 Quality ETF helps solve that problem by diversifying into financially healthy and more defensive stocks from other areas of the market. This fund has Industrials (23%), Consumer Staples (14%), Financials (12%), and Healthcare (8%) as its top sector positions after tech. That’s a solid mix that should provide some downside protection in the event that lingering geopolitical or inflation risks last longer than expected.
What buying SPHQ means for your portfolio
Right now, most portfolios are heavily invested in tech and growth stocks. That combination has performed well over the past several years, but it also makes them especially vulnerable should anything show signs of slowing. A good example is the pullback earlier this year as the Iran war started. The Vanguard S&P 500 ETF fell by 9%, but the Vanguard Growth ETF and the Vanguard Information Technology ETF were both down around 16% from peak to valley.
