Looking for Quality? Check out this ETF

Defining what "quality" means for the average investor is a difficult task; as such, creating an exchange traded fund (ETF) that tracks only "quality" companies can seem like an impossible task. In this article, I'm going to discuss one ETF which does a very good job at attempting to attain such a high ideal.

The ETF in the hot seat today is Invesco S&P 500 Quality ETF (SPHQ). This ETF attempts to track companies with strong balance sheets and a long track record of profitability, meaning fundamental strength is at the foundation of this ETF - a fact conservative long term investors will love. This ETF utilizes a number of mechanisms to make such determinations.

Of the key factors this ETF uses to pick its 100 companies, low operating leverage and low growth in net operating assets are two very interesting factors which are quite unique. Essentially, this ETF seeks out companies with low growth in capital expenditures and higher relative payout ratios.

Investing in companies that focus on creating higher levels of free cash flow can potentially come at a cost (less reinvested into said business), but can support higher dividend growth over time or debt repayment, huge benefits for conservative investors with a long investment time horizon.

Additionally, this ETF filters companies on their return on equity ratios, perhaps one of the best profitability metrics out there for long-term investors, adding a layer of safety to the aforementioned two key metrics used by this fund.

Invest wisely, my friends.