Two "Flight to Quality" Funds
The term “flight to quality” is often tossed around on Wall Street, particularly when times are tough. Two exchange trades funds that embody this notion are Invesco S&P 500® Quality ETF and iShares Edge MSCI USA Quality Factor ETF.
We’re not recommending that investors purchase these funds. We do, however, find it instructive to look at the notion of quality through the lens of Wall Street, and to see what firms these funds hold, presumably because they rank high on the quality scale.
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Both funds hold stocks with the following characteristics: high returns on equity, low levels of debt, stable growth, and earnings that have little in the way of adjustments or estimates. Notably, neither fund has delivered returns dramatically different from the market at large, though some investors think this will change if economic conditions further deteriorate.
The following companies are the largest holdings in both funds.
- Johnson & Johnson (NYSE: JNJ)
- PepsiCo, Inc. (NASDAQ: PEP)
- Apple (NASDAQ: AAPL)
- Mastercard Incorporated (NYSE: MA)
- Visa Inc.(NYSE: V)
- Merck & Co., Inc. (NYSE: MRK)
David R. Evanson is a financial journalist in Philadelphia.