Quality

This Leuthold Refresh updates our Factor Tilt analysis, an ongoing process to evaluate the attractiveness of commonly accepted investment styles. Factors are investment characteristics that have historically produced excess risk-adjusted returns, but relative results fluctuate over time.

• Read more

Quant researchers widely agree that Value offers a return premium over time (although not recently) and that High Quality also offers excess returns. The Quality angle seems contrary to intuition, in that investors generally prefer Quality companies and are willing to pay up for them, yet Quality regularly outperforms. Value and Quality are both well-respected investment factors, and we were curious to explore the interaction of these two smart beta stalwarts. Is Value enhanced by adding a layer of Quality, thereby avoiding value traps, or are Value investors better off buying junky, unattractive companies that have the most room to rebound from depressed prices?

• Read more

March 23rd marked the one-year anniversary of the COVID-19 bear-market bottom. We are all eager to turn the page on the pandemic ordeal and move forward to brighter days ahead. Looks like some big help is coming our way.

• Read more

Despite higher volatility, market performance is still up in the high double-digits YTD. Interestingly, as our index of High Quality Stocks versus Low Quality Stocks shows, High Quality is prevailing in terms of relative performance.

• Read more

Quality is one of the most popular and successful of the smart beta factors. It is intuitively appealing and serves as a useful defensive strategy in market drawdowns.

• Read more

Following 2016 underperformance, High Quality stocks eked out an advantage over Low Quality stocks to begin 2017 (+5.3% versus +2.1%, respectively). Yet, the “Junk Rally” trend seems difficult to reverse.

• Read more

Performance and valuation of the three Quality factors are diverging. From a valuation standpoint, we might see a reversal in performance, with the Stability factor weakening and the Leverage factor strengthening.

• Read more

Even though Low Quality spends the majority of time outperforming, investors benefit exponentially from holding High Quality during the bad times.

• Read more

On a relative basis, High Quality Stocks lived up to the reputation of providing a safe haven.

• Read more

High Quality stocks had another winning quarter on a relative basis returning +0.1% in Q2, while Low Quality stocks lost 2.8%. Small Cap High Quality stocks also beat their counterparts.

• Read more

Last time we updated this work, we were surprised by how much High Quality stocks had outperformed. In Q4 2014, High Quality stocks were up 9.6%, while Low Quality stocks had edged up only marginally (+0.3%).

• Read more

In early October 2014, we noted the momentum reversal of Low Quality stocks and a few signs of the likelihood of transitioning to another phase of the quality cycle. The official numbers of Q4 have confirmed this.

• Read more

During a tumultuous Q3, High Quality stocks proved to be resilient, losing only 2.0% compared to Low Quality stocks’ 7.5% loss in Q3. Low Quality stocks’ prior momentum seems to have broken down, especially in September when they slid by 7.1% for the month.

• Read more

Although the overall picture remains favorable for high grade credits, the increased exposure to interest rates with an ever thinner spread cushion does concern us. We will monitor closely for potential downgrades.

• Read more

In December, we declared the market was likely entering into a cycle where High Quality stocks would shine. Unfortunately, market action since then reminds us of the virtue of being humble.

• Read more

Momentum suffered across almost every sector, but it was particularly bad for Health Care and Info Tech. Value factors finally rebounded after losing over the past year.

• Read more

Momentum has easily been the best quantitative factor over the last year. The only other factor with notable positive performance is Sentiment. Can this continue?

• Read more

Stocks with High Quality rankings have outperformed those with Low Quality rankings for the past few months. The junk rally is at or near an end, and investors may want to shift their attention to High Quality stocks.

• Read more

This group moved back into the Attractive range in September. We like the group’s business model, industry M&A momentum, and stocks’ ability to generate free cash flow. All in all, companies in this group are good candidates for investors hunting for High Quality.

• Read more

Despite rising market volatility, Low Quality stocks ended Q2 up 3.8%, slightly better than High Quality’s 3.4% gain. YTD, High Quality stocks are up 14%, just behind Low Quality stocks at +16.6%.

• Read more