globalen

Quality-factor

Forms part of an investment strategy that selects high-quality companies.

The criteria for this factor can be 'hard' (e.g., returns on shareholders' equity and free cashflows), but the application of this factor can also be based on 'softer' criteria such as quality of management, corporate governance and market position. As there is no precise fixed definition for Quality, academic circles are debating the use of this factor.

Valuation can also play a role in the selection of Quality stocks. Therefore, ongoing debate is questioning whether this factor differs from the Value factor. Researchers Assness and Frazzini* define the Quality factor as investing in the stocks of safe, profitable, expanding and well-managed companies.

Interest in the Quality factor increased in the aftermath of auditing scandals such as the Enron affair in 2001. Another reason for the increased interest in the Quality factor is the possibility of achieving greater diversification.

* Clifford S. Asness, Andrea Frazzini, and Lasse H. Pedersen: 'Quality Minus Junk', 2013

Quantitative investing
Quantitative investing

We’ve been leading the way in quant investing for over 25 years, turning research into practical solutions.

Read more
Short positions do not add value to factor investing strategies
Short positions do not add value to factor investing strategies
Common wisdom among academics and investors has it that factors are best harvested using both long and short positions.
09-12-2019 | Research
Conservative Equities: strong risk reduction despite the recent value drag
Conservative Equities: strong risk reduction despite the recent value drag
Despite inevitable hiccups, Conservative Equities’ track record shows our approach adds value.
02-12-2019 | Insight
Factor investing debates: Could factor premiums disappear?
Factor investing debates: Could factor premiums disappear?
With the increasing adoption of factor investing, one frequently heard criticism is that factor premiums may end up being arbitraged away.
28-11-2019 | Insight