Quality, Value & Growth Overview
Amid recent challenges presented by trade tensions and economic uncertainty, multi-factor investing has emerged as a strategy aiming to enhance performance and manage volatility. Many factor-based indices have a long track record of outperforming their benchmarks by leveraging well researched behavioral and economic risk/return drivers.
The S&P/BMV IPC Quality, Value & Growth (QVG) Index exemplifies the practical application of multi-factor strategies. It tracks a selection of stocks from the S&P/BMV IPC that exhibit the strongest combined quality, value and growth characteristics. Historically, this multi-factor index has offered stability during downturns while providing potential upside as markets strengthen. Quality stocks are characterized by their resilience in down markets due to strong fundamentals. Value stocks focus on constituents that appear underpriced relative to other financial metrics, indicating potential for outperformance, especially during market recoveries. Growth stocks are defined by above-average earnings growth, fostering positive sentiment and potential for higher performance, particularly during bull markets. By tilting toward these three factors, the S&P/BMV IPC QVG Index has outperformed its benchmark over the past 20 years (see Exhibit 1).
Index Methodology
Constructing multi-factor portfolios in smaller equity markets may be challenging. However, the launch of the S&P/BMV IPC QVG Index has made tracking these factors more accessible. Using a bottom-up approach, the index evaluates the performance of stocks within the S&P/BMV IPC that exhibit the highest multi-factor score, combining elements of quality, value and growth. If any of a constituent's factor scores ranks among the lowest four in the S&P/BMV IPC for that factor, it is excluded from the index. The selected constituents are then weighted based on their final multi-factor score, calculated as the simple average of the underlying quality, value and growth scores. The metrics used in the construction of the S&P/BMV IPC QVG Index are summarized in Exhibit 2.
