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 ETFs
Also available as mutual funds which invest in the underlying ETFs:
Fidelity U.S. High Quality ETF Fund →
Fidelity U.S. High Quality ETF Fund - US$ →
Fidelity International High Quality ETF Fund →
Fidelity International High Quality ETF Fund - US$ →
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
How to buy Fidelity ETFs
Make the most of your hard earned money with Fidelity ETFs.