When you’re in the process of buying a new car, you typically look at factors such as its durability, fuel efficiency, and many inbuilt safety features to determine its quality. Right?
Investing in stocks based on the Quality Factor works in a similar manner. It seeks to capture companies with durable business models and sustainable competitive advantages. It has been observed that such high-quality stocks tend to outperform low-quality stocks, over a long time horizon, as they are better equipped to weather adverse economic conditions.
In order to define Quality stocks, you could look at fundamental ratios such as Debt to Equity, Return on Equity and Return on Assets. Add a dash of quality to your core investing portfolio by investing in Index Funds and ETFs tracking indices such as the S&P BSE Quality Index.
We hope that you must have understood the term of Quality factor, as it is our constant endeavour at Motilal Oswal to educate & make an ‘investor’ a ‘sound investor’! Happy Investing!