“Quality” is clearly a popular theme among nervous equity investors at the moment, so it’s not surprising to see that MSCI has just launched a series of quality indices. The press release [PDF] and methodology [PDF] give more details, but essentially the components are screened on three factors: High return on equity, stable earnings and low financial leverage.
This is what most investors would consider to be a simple standard definition of quality, as opposed to the two obvious comparison indices: Société Générale’s new-ish Global Quality Income Index (which is a somewhat more complicated combination of the Piotroski score and the Merton distance-to-default model) and the older Standard and Poor’s S&P 500 High Quality Rankings Index, which is based on stability and growth of earnings and dividends (and in my view doesn’t seems to provide a very satisfactory quality filter).