In this Norges Bank Investment Management (NBIM) paper , the authors conducted an empirical study of six stock characteristics that are associated with quality: (1) gross profitability, (2) cash flows, (3) leverage, (4) change in net debt, (5) EPS stability, and (6) EPS quality. They used a global sample over the period 1994-2015 and found overwhelming evidence of excess returns for these quality factors. An equally-weighted combination generates an excess return of 8.94 percent with an information ratio of 0.95.
It is difficult to find risk-based explanations for why high-quality stocks should outperform low-quality stocks, as the low-quality stocks typically seem riskiest. Behavioral and institutional explanations that have been put forward in the literature for the quality effect therefore appear to be more plausible.
At Robeco, we subscribe to the idea that quality variables lead to excess returns. They have formed part of our quantitative stock selection models since the launch of our first quant equity strategy back in 2002, and a dedicated equity quality factor strategy was launched in 2016. Moreover, we also apply quality variables in our quantitative corporate bond selection models that are used in our factor credit strategies.
The information contained in the website is solely intended for professional investors. Some funds shown on this website fall outside the scope of the Dutch Act on the Financial Supervision (Wet op het financieel toezicht) and therefore do not (need to) have a license from the Authority for the Financial Markets (AFM).
The funds shown on this website may not be available in your country. Please select your country website (top right corner) to view the products that are available in your country.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.