Invesco S&P International Developed Quality ETF (IDHQ) has delivered a strong performance in 2026. As of October 8, the fund's net asset value was up nearly 26% from the start of the year, placing it near the top of a category covering 380 comparable funds. As of October 9, Seeking Alpha ranked IDHQ fifth among 145 ETFs focused on global equities outside the United States. The fund targets large companies in overseas developed markets with relatively low leverage and high returns on equity, a selection approach drawing attention as interest rates rise across several developed economies.
IDHQ's longer-term profile is less prominent. The fund began trading on June 13, 2007, but currently has about $1.1 billion in assets under management. Its expense ratio is 0.29%, while its turnover ratio is 41%, roughly 11% above the median for all ETFs.
A quality screen built around returns and debt
IDHQ tracks the S&P Quality Developed Ex-U.S. LargeMidCap Index. The index starts with stocks from the S&P Developed Ex-U.S. LargeMidCap Index, excluding emerging-market and small-cap companies. Eligible stocks must also meet a liquidity requirement: average daily traded value must have been at least $3 million over the previous three months.
The index assigns each company a quality score based on three measures. The first is return on equity, calculated using earnings per share over the past 12 months divided by the latest reported book value per share. The second is the accruals ratio, measured as the change in net operating assets over the most recent fiscal year divided by average total assets over the prior two fiscal years. The third is financial leverage, calculated as the latest reported total debt divided by book value.
The index selects the top 20% of qualifying companies by quality score and weights them according to market capitalisation multiplied by the quality score. It is rebalanced semi-annually after the close on the third Friday of June and December. As a result, IDHQ may have some characteristics associated with value funds, but its process is not simply designed to find stocks trading at low price-to-earnings multiples. It is intended to identify companies with comparatively strong profitability and balance sheets.
ASML and Roche lead the holdings
As of October 8, 2026, IDHQ held 184 stocks. Its 10 largest positions accounted for about 33.5% of fund assets. ASML Holding and Roche Holding each represented slightly more than 5%, while Novartis accounted for more than 3.4%.
Most of the largest holdings are headquartered in Europe, but Japan is the fund's largest single-country allocation at 16.5%. Japanese semiconductor testing-equipment maker Advantest is one of the major positions, with its share price up more than 120% over the past 12 months. Company guidance for fiscal 2026 indicates that sales are expected to rise by nearly 52% year on year, while adjusted earnings per share are projected to increase by 77%. Another Japanese holding, Recruit Holdings, provides human-resources technology and business solutions. Its American depositary receipts have risen nearly 113% over the past year.
Switzerland is the second-largest country allocation, with Roche, Novartis and Nestle among the fund's holdings. The United Kingdom is another country with a weighting of at least 10%, while Germany accounts for 9.8%. Japan is separated from the Netherlands, ranked sixth, by less than 10 percentage points, indicating that the portfolio is not concentrated in only one or two national markets.
Industrials, technology and healthcare dominate exposure
Industrials are IDHQ's largest sector allocation at 23.16%, although that is below the 33.68% weighting in Invesco S&P MidCap Quality ETF (XMHQ). Information technology accounts for 16.74%, giving the fund exposure to growth-oriented companies such as Advantest. Healthcare and financials represent 16.56% and 15.66%, respectively. The fund has exposure to all 11 sectors, although utilities and real estate account for relatively small shares.
The average market capitalisation of the fund's holdings is slightly above $151.6 billion, while the portfolio's forward price-to-earnings ratio is 17.36 times and return on equity is close to 30%. Morningstar data shows that 61.6% of the fund's assets are invested in mega-cap stocks, with another 30.3% in large caps and about 7.3% in mid-caps. IDHQ's dividend yield was 1.97% as of September 30, a relatively modest level for investors accustomed to higher dividend income from international large-cap stocks.
Returns top 24% as September inflows reach about $120 million
Because IDHQ is passively managed, its results are closely tied to the index it tracks. Invesco data shows that the fund's net asset value had risen more than 24.5% year to date as of September 30 and nearly 31% over the previous 12 months. It also posted double-digit annualised returns over the past five- and 10-year periods.
IDHQ has also outperformed the widely used MSCI EAFE developed-market benchmark in recent periods. Over the past 12 months, the fund's gain was close to twice that of the index. Over three years, MSCI EAFE delivered an average annual return of 18.4%, compared with approximately 21.2% for IDHQ. The comparison is not exact: MSCI EAFE excludes Canadian stocks and has higher allocations to Japan and the United Kingdom, although the two portfolios still overlap considerably. ASML is also the index's largest constituent, while Roche ranks third in the index and is IDHQ's second-largest position.
Morningstar data places IDHQ in the top 9% of comparable funds over the one-, three-, five- and 10-year periods, with a top-3% ranking over five years. That period includes the negative returns recorded in 2022, providing a performance record across different market conditions. Over the past 12 months and since the start of 2026, the fund has ranked near the top among more than 370 international growth funds. Morningstar has also awarded it a five-star rating for risk-adjusted returns. On the flows side, IDHQ recorded about $120 million of net inflows in September 2026, with subscriptions increasing noticeably in recent months.
Currency, trade and rates remain key variables
International equity returns depend not only on company performance but also on currency movements, trade relationships and changes in local regulation. The US Dollar Index has risen just over 4% since the start of 2026. A stronger dollar can reduce the dollar value of overseas assets when returns are translated back into US currency, although exchange-rate moves have varied by country. Trade tensions and supply-chain disruptions may also have a greater effect on some overseas markets than on the US, particularly where companies have less ability to absorb sudden changes in the short term.
Industrials make up more than 23% of IDHQ's assets, so the sector could face greater pressure if the global economy slows because of military conflict, fuel shortages or other factors. Even companies with relatively low debt may delay or reduce capital spending when borrowing costs are high. Financial stocks typically carry substantial weight in international large-cap funds and often offer relatively attractive dividends, but they rank only fourth in IDHQ's sector mix. For investors seeking a higher total return, the fund's results therefore depend more heavily on changes in net asset value than on dividend income.
Higher rates put the low-leverage screen in focus
Six of IDHQ's 10 largest country allocations recorded increases in short-term interest rates over the latest 30-day period. In September, the Federal Reserve, Bank of Japan, European Central Bank and Reserve Bank of Australia each raised rates by 25 basis points. The Bank of Japan's policy rate reached 1.25%, its highest level in 31 years. After a recent sell-off in French bonds, the yield on France's 10-year government bond also moved above 5%.
Higher rates do not guarantee stronger performance from IDHQ's holdings. However, in industries where profit margins are under pressure, companies with heavier debt burdens are generally more exposed to rising interest expense. Because IDHQ uses financial leverage as a quality-screening measure, some holdings may have a cost advantage over more heavily indebted peers. That difference could become more visible if elevated borrowing costs persist.
The fund's strong performance this year is not explained by interest rates alone. As volatility in US equities has increased, IDHQ has provided exposure to large companies in developed markets including Europe and Japan. Its sector concentration, currency exposure, industrials weighting and dividend yield below 2% remain specific factors investors must consider alongside the fund's low-leverage screening and recent performance.