Quality factor ETFs invest in shares or other assets with an emphasis on finding and holding those which are higher ‘quality’, such as high return on equity (ROE) and returns on invested capital (ROIC).
For example, the hypothetical “ABC Quality ETF” would use a set of rules (e.g. return on equity, profit margins, etc.) with the aim of finding shares that have features that make them higher quality than an average company. Some of the most common ‘quality’ factors are wide profit margins and low debt.
You should carefully study the rules used to determine which shares are — and are not — considered quality shares. You may be leaving something on the table by focusing too much on quality.
