The quality factor is persistent and has proved as much over the course of 2020. Investor can tap into these benefits with the Principal Quality ETF (NasdaqGM: PSET).
PSET tries to reflect the performance of the Nasdaq U.S. Price Setters Index, which takes mid- and large-cap U.S. companies from the Nasdaq U.S. Large Mid Cap Index that exhibit high degrees of purchasing power. Essentially, these companies can raise prices of their products or services without experiencing diminished demand. Additionally, the components show consistent sales growth, high/stable margins, quality earnings, low leverage, and high levels of profitability.
“Quality investing encompasses several considerations, much to do with the financial characteristics of a company. Commonly accepted attributes of a ‘quality’ company include its profitability, earnings reliability, debt levels and balance sheet strength,” according to LiveWire.
PSET’s index uses a quantitative model designed to identify equity securities of mid- to large-capitalization companies in the Nasdaq US Large Mid Cap Index (the “parent index”) that exhibit high degrees of pricing power. First off, the index filters out 550 of the top companies within the index based on market capitalization.
Set a Quality Pace with PSET
The quality investment factor can help investors focus on companies that are better equipped to handle uncertainties the markets may throw at them, sifting out corporations with questionable profit outlooks and rising debt levels as a way to home in on those with solid fundamentals.
Quality traits “are identifiable in company reports. You can determine a company’s financial position by the strength of its balance sheet. Earnings are able to analysed, so too are company ratios. In the age of big data, several indices have been developed to capture the quality factor,” reports LiveWire.
PSET looks for companies with favorable pricing power. In order to do this, it looks at the following characteristics: high-quality metrics, a high degree of profitability, brands with a strong market presence, and a bulletproof business model that can withstand various market cycles.
In addition, investors need to spot quality play that can sustain themselves over the long-term horizon. That’s especially the case now with the world still trying to wade through the mud known as the Covid-19 pandemic. PSET gives investors an avenue for remaining engaged with equities in an uncertain environment.
For more on multi-factor strategies, visit our Multi-Factor Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.