Larry is far more of an expert than me, so you should probably listen to him. I'll explain my thinking anyway though.nedsaid wrote: ↑Sat Nov 02, 2019 10:33 pmLarry told me in a personal message that Avantis screens for Profitability which is related to Quality. Avantis uses a combination of cash flow and earnings metrics and uses a modified book value.
Hopefully Larry can comment. I didn't quote from his message as most all of it came directly from Avantis but I can't point you to a particular source. I want other Bogleheads to be able to look things up themselves.
Quality is one of the "fuzzier" factors with a lot of different definitions and everybody seems to have their own mix of underlying metrics.
Vanguard's factor funds define quality as:
"For financials the Quality factor is measured by return on equity and share issuance. For non-financials the Quality factor is measured by return on equity, gross profitability, change in net operating assets, and leverage."
MSCI/iShares factor funds define quality as:
"The quality score for each security is currently based on all quality factors, Profitability,
Investment Quality, Earnings Quality, Leverage and Earnings Variability, from the relevant
Barra Equity Model (currently GEMLTL). A sector-relative score is derived from the combined
score by standardizing the latter within each sector and winsorizing at +/- 3.
Quality = (0.2) ∗ Profitability + (0.2) ∗ Investment Quality + (0.2) ∗ Earnings Quality
+ (−1) ∗ (0.2) ∗ Earnings Variability + (−1) ∗ (0.2) ∗ Leverage"
Not all of these are available from morningstar (although perhaps there is a better online source?), but what is available:
Long-Term Earnings % 9.1/9.55
Historical Earnings % -5.67/2.04
Sales Growth % 4.16/-52.95
Cash-Flow Growth % -3.76/-26.39
Book-Value Growth % 4.77/-1.15
So AVDV does have higher earnings % (which would match the quoted methodology) but higher variability and negative growth. It really depends on how you define "quality".