Quality investing focuses on finding companies that generate solid proﬁts, possess strong balance sheets, demonstrate stable cash ﬂows and lack excessive leverage — the typical hallmarks of quality companies. Historically, securities of these companies have been more profitable, generated higher earnings and tended to outperform their peers over time.
What is a quality factor?
The quality factor targets companies with stable profitability and cash flows, a lack of excessive leverage or have a better credit quality.
- Typically defined as companies with durable business models and sustainable competitive advantages
- Common ways to measure the quality of a company are its return on equity and leverage
Why does it matter?
Companies that generate profits higher than their cost of capital, with stable cash flows and good balance sheets, can provide outperformance over time
For a company to have higher margins and profits than its competitors, it must have some competitive advantage that allows it to earn higher profits relative to its invested capital
Consistent with the philosophy that stocks follow earnings, higher-quality companies with stable earnings and cash flows can outperform over time
Fidelity Canada High Quality Index ETFs
Fidelity Canadian High Quality Index ETF
Fidelity U.S. High Quality Index ETF
Fidelity U.S. High Quality Currency Neutral Index ETF
Fidelity International High Quality Index ETF
Also available as mutual funds which invest in the underlying ETFs:
Fidelity Canadian High Quality Index ETF Fund →
Fidelity U.S. High Quality Index ETF Fund →
Fidelity U.S. High Quality Currency Neutral Index ETF Fund →
Fidelity International High Quality Index ETF Fund →
Fidelity for quality factor-based investment strategy
At Fidelity, our quality factor funds seek to track the performance of tailor-made indexes that are actively designed. The Fidelity Canada High Quality Factor Index is designed to reflect the performance of stocks with a higher quality profile than the broader market. Typically, higher-quality companies have tended to outperform their peers over time.
Single-factor exposure to companies with solid proﬁts, strong balance sheets and stable cash ﬂows
An outcome-oriented approach that has the potential to outperform over time
An efficient complement to a well-diversified portfolio
ETF education centre
Gain a deeper understanding of factor investing at the Fidelity education centre.
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