Significant empirical evidence from academic research emphasizes the benefits of quality investments:
- Higher Profitability. High-quality companies tend to have above-average profitability measures, such as return on equity (ROE), return on assets (ROA), and net profit margin. Higher returns can allow companies to reward their shareholders through internal growth, dividends, or share repurchases.
- Stronger Balance Sheets. Debt-to-capital is a leading statistic used to measure the quality of a company’s balance sheet. Lower debt levels allow a company more freedom to grow in the future.
- Earnings Growth. Companies with higher and more stable earnings growth can support stronger dividend growth. The average long-term earnings growth estimates are higher for companies with superior historic ROE and ROA figures.
- Dividend Growth. Managers in stable corporations with confidence in the future are better able to consistently grow dividends. ROE is a key attribute of such companies.
CLS’s Active High-Quality Strategy invests in high-quality domestic and international equity ETFs that meet stringent criteria for profitability, balance sheet strength, and growth. We prefer those with higher liquidity measures and lower expense ratios.