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Betting on quality stocks instead of junk is easier than you may think

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GMO is launching its first-ever ETF, focused on quality stocks. Why?

Though high-quality stocks are a good bet to outperform low-quality stocks over the long term, I doubt investors’ need yet another ETF focused on high-quality stocks.

Though different advisers employ slightly different definitions of quality, there is general agreement that quality stocks are those that are highly profitable and have consistent earnings and healthy balance sheets. So-called “junk” stocks are at the opposite end of the quality spectrum. From mid-1957 through mid-2023—a 66-year period—AQR’s quality stock portfolio outperformed its junk stock portfolio by more than eight annualized percentage points: 11.9% to 3.7%.

 

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