Study finds holes in quality factor indexes

Dollars down a black hole — Investing in indexes constructed using certain metrics ‘a waste of capital’

Rob Mannix
@RobMannix
19 Dec 2017

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It has been one of the more popular and better-performing factor investments in recent years but, according to a new analysis, many strategies based on buying quality stocks are statistically flaky.

The study by factor-investing firm Research Affiliates suggests three of the most common groups of metrics used to pick stocks going into quality factor indexes – leverage, earnings stability and earnings growth – deliver little, if any, alpha.

Indexing firms and asset managers should use only

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