Quality ETFs, which invest in companies with stable earnings power, solid balance sheets, and low debt, are generally considered attractive investment options for long-term stability and growth. They provide investors access to financially healthy firms with sustainable growth potential and often stable dividends.
Why Quality ETFs are Currently Lagging
Nevertheless, many quality ETFs are not delivering on their promises this year: many quality stocks are underperforming compared to the broader market. This is relevant for investors who may have expected better returns from broadly diversified market indices.
Causes of Quality Stocks Underperformance
- Market Conditions: In periods of increased volatility or changing economic conditions, defensive quality stocks may lose appeal compared to growth-oriented or cyclical stocks.
- Interest Rate Environment: An environment without interest rate cuts coupled with slower economic growth can lead investors to favor riskier investments over stable earnings power.
- Structural Changes: The increasing frequency and intensity of market volatility make it more challenging for quality stocks to consistently outperform the overall market.
Action Options for Investors
According to Handelsblatt editor Andreas Neuhaus, investors should:
- Be Patient: Since quality stocks are typically more resilient to economic fluctuations, it may be worthwhile to endure short-term underperformance and anticipate a return to long-term quality expectations.
- Broaden Diversification: Investors could complement their portfolios with other factors or sectors to spread risk and explore opportunities in other market segments.
In summary: Although quality ETFs possess fundamentally solid attributes and are attractive in the long term, they may lag behind the broader market in certain market phases. This requires investors to understand the current causes and strategically adjust their investment strategy.