Study finds holes in quality factor indexes
Metrics commonly used to build indexes bring zero alpha, says Research Affiliates
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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