How is 'Quality' Measured?
The below table shows that quality factor commercial indices are not all the same. They have different inputs and methodologies, which often lead to different outcomes.
| Index Details |
Factor Characteristics |
Methodology |
Index Name: S&P 500 Quality Index
Index Provider: S&P Dow Jones Indices LLC |
ROE (TTM), Balance Sheet Accruals Ratio (Change in NOA/Avg NOA), Leverage (Total Debt/BVE) |
Tilt S&P 500 Index (capitalisation-weighted) towards 100 constituents with their weights based on the product of their market cap in the Parent Index and Overall Quality (based on the 3 Quality metrics) |
Index Name: Russell 2000 0.4 Target
Exposure Quality Factor Index
Index Provider: FTSE Russell |
Profitability (Only ROA for profitability in case of Financial and RE companies): ROA, Accruals Ratio, Change in ATO; Leverage: Leverage Ratio (OCF/Total Debt) |
Tilt Russell 2000 Index (capitalisation-weighted) based on a combined Quality Z-score |
Index Name: NIFTY100 Quality 30 Index
Index Provider: NSE Indices Ltd |
ROE, Financial Leverage (D/E), and last 5-Yr EPS growth variability |
Choose 30 stocks from Nifty 100 Index (capitalisation-weighted) based on their quality scores and weight them according to the product of their free-float market cap and Quality Z-Score |
Index Name: Fidelity U.S. Quality Factor Index
Index Provider: Fidelity Investments Inc. |
For Non-Banks: FCF Margin, ROIC, FCF Stability; For Banks: ROE, Debt to Assets |
Select high quality stocks, from top 1,000 stocks in the U.S., based on a composite score. Security weights determined on the basis of an overweight adjustment (identical for all stocks within a sector) and their market capitalisations |
| Index Name: MSCI India Quality Index Index Provider: MSCI Inc. |
ROE, Debt-to-Equity, Earnings Variability |
Tilt MSCI India Index (capitalisation-weighted) towards high Quality constituents with weights equal to their product of market capitalisations weight in MSCI India Index and Composite Quality Score |
Source: FTSE Russell, MSCI Inc, S&P Dow Jones Indices LLC, NSE Indices Ltd. & Fidelity Investments Inc.
