High-quality factor ETFs may be a good fit for investors who value exposure to companies showing financial strength, high profitability and a potential for long-term outperformance. Whether you’re building a core portfolio or looking to enhance stability, quality investing offers a disciplined approach to achieving your investment goals.
How to find high-quality stocks to build long-term wealth
For investors looking for long-term growth, quality investments can make all the difference, especially in noisy and unpredictable markets. The idea of a “flight to quality” isn’t just a fancy phrase; it’s a concept backed by real data. It means that when things get risky, investors often move their money into safer investments – such as the stocks of high-quality companies. These companies typically have strong financials, steady profits and tend to do better over time. Their solid balance sheets, low debt, reliable cash flow, and strong past performance are key characteristics that can make them an attractive option.
What is quality factor investing?
The quality factor focuses on finding companies that show financial and operational strength. These firms typically
- generate higher returns on invested capital
- maintain low levels of debt
- demonstrate stable cash flows
- have strong business models and sustainable competitive advantages
These characteristics not only signal financial health but also position companies to weather economic downturns and take advantage of growth opportunities.
Why invest in quality ETFs?
Profitability: Companies that consistently earn more than their cost of capital tend to outperform over time.
Competitive advantage: Higher margins and profits often come from unique strengths, such as brand power, innovation or market leadership, that are difficult for competitors to replicate.
Earnings stability: Firms with steady earnings and cash flows are more likely to deliver consistent returns.
What is Fidelity’s approach to quality factor investing?
Fidelity’s high-quality factor ETFs aim to track the performance of tailor-made indexes that are actively designed and reflect the performance of companies with stronger financial profiles than the broader market. These funds offer:
- single-factor exposure to high-quality companies
- an outcome-oriented strategy that has the potential to outperform over time
- an attractive complement to a well-diversified portfolio
The Fidelity Canada High Quality Factor Index is designed to capture these advantages, helping investors tap into the long-term benefits of quality investing.
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