Three well-known Exchange Traded Funds (ETFs), COWZ, QUAL, and SPHQ, each aim to identify and invest in superior companies. However, a recent analysis of their N-PORT filings from July 31, 2026, reveals a striking lack of consensus, with only a dozen companies appearing across all three portfolios. This significant divergence highlights the subjective nature of defining "quality" in stock selection and poses a challenge for investors seeking true diversification through these seemingly similar funds. The findings emphasize that while fund names might suggest common objectives, their underlying investment strategies and resulting asset allocations are often remarkably distinct.
The three ETFs in question—the Pacer US Cash Cows 100 ETF (COWZ), the iShares MSCI USA Quality Factor ETF (QUAL), and the Invesco S&P 500 Quality ETF (SPHQ)—are substantial players in the market. As of the filing date, QUAL managed $46.53 billion in net assets, SPHQ held $19.45 billion, and COWZ had $18.69 billion. Despite their collective focus on high-quality firms, their portfolios largely operate in isolation from one another. This became evident upon examining their top holdings, which illustrated three distinct investment philosophies.
COWZ, for instance, known for its emphasis on cash flow generation, featured Booking Holdings, Bristol-Myers Squibb, HCA Healthcare, Marathon Petroleum, and General Dynamics among its top five positions. This selection spans travel, pharmaceuticals, healthcare, energy, and defense, reflecting a diverse industrial approach. In contrast, QUAL's leading holdings were dominated by technology giants such as Microsoft, Apple, and NVIDIA, alongside TJX Companies and Meta Platforms, showcasing a strong bias towards large-cap tech. SPHQ's portfolio leadership included financial technology leaders Mastercard and Visa, Apple, GE Vernova, and Costco Wholesale, indicating a blend of payment networks, technology, and consumer staples. These differences in top holdings demonstrate that each fund interprets "better companies" through a unique lens, leading to vastly different sector exposures and investment styles.
Furthermore, the level of portfolio concentration varies significantly among these ETFs. COWZ, with its 100 holdings, allocates only 20.4% of its assets to its top ten positions, suggesting a more evenly distributed risk profile. Conversely, QUAL and SPHQ exhibit higher concentration, with their top ten holdings accounting for 43.2% and 43.1% of their respective portfolios. This implies that the performance of QUAL and SPHQ is more heavily influenced by a smaller number of companies, making them more susceptible to the fluctuations of individual large-cap stocks. For instance, a challenging quarter for a major holding like Microsoft in QUAL or Mastercard in SPHQ would have an immediate and pronounced impact on the fund's overall performance. COWZ's broader distribution, on the other hand, mitigates the impact of any single company's underperformance.
The term "Quality" in the names of QUAL and SPHQ might suggest a greater alignment between them. Indeed, these two funds share 49 holdings, representing the highest overlap among any pair. However, the weighting of these shared companies differs. The overlapping stocks constitute 47.3% of QUAL's net assets but a more substantial 61.4% of SPHQ's. This disparity means that QUAL, a larger fund with a broader range of holdings, retains more than half its capital in companies not present in SPHQ's portfolio. In comparison, COWZ's overlap with QUAL involves only 22 holdings, making up 20.3% of its net assets, while its overlap with SPHQ comprises 27 holdings.
Performance-wise, COWZ has outperformed its counterparts in the short term, leading both year-to-date and over the past year. As of October 8, 2026, COWZ showed a 15.65% year-to-date return and a 22.34% one-year return. In contrast, QUAL and SPHQ posted year-to-date returns of 14.53% and 14.66%, and one-year returns of 16.53% and 17.14%, respectively. However, over a five-year horizon, COWZ lags behind, with a 70.42% return compared to QUAL's 78.89% and SPHQ's 84.12%. This mixed performance underscores that different methodologies yield different outcomes across various timeframes.
Investors should exercise caution and conduct thorough due diligence beyond just fund labels. The absence of a standardized definition for terms like "quality" means that each fund provider interprets and implements these concepts differently. Therefore, examining the actual holdings of an ETF is the only reliable way to understand its true investment exposure and to determine if it aligns with one's personal investment goals and risk tolerance. Pairing funds based solely on perceived similarities can lead to unintended over-diversification or, conversely, a lack of true diversification if the portfolios largely overlap. Future N-PORT filings will continue to shed light on the evolving dynamics of these funds, guiding investors in making informed decisions.
