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Oh, Quality, Where Art Thou?

Highlighting the reduced upside but full downside capture of quality ETFs

Nicolas Rabener
10 min read
19 Feb 2021

SUMMARY

  • Quality and quality income ETFs have underperformed the S&P 500 since 2005
  • The most recent underperformance is explained by an underweight to technology stocks
  • However, more importantly, quality ETFs have not reduced drawdowns during stock market crashes

INTRODUCTION

Investing is never easy, but it is sometimes easier. Buying US government bonds at 10%+ yields when inflation was steadily decreasing in the 1980s was probably less worrying than buying them today at practically zero yields. In today’s world, bonds have largely lost their purpose in asset allocation, although they still constitute a large proportion of investors’ portfolios.

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