Quality Minus Junk (QMJ)
CONFIRMEDSafe, profitable, growing firms trade at only modestly higher prices than junk, so long quality, short junk earned positive risk-adjusted returns.
| THE STRATEGY | $SPX BUY & HOLD | |
|---|---|---|
| Growth a year (CAGR) | 12.5% | 9.1% |
| Return per unit of risk (Sharpe) | 0.76 | 0.65 |
| Worst fall (max drawdown) | -56.4% | -52.6% |
// GROWTH OF $1, LOG SCALE
Tested on years it never saw (from the split): 15.7% a year against 12.4% for the benchmark; Sharpe 0.68 in the training years, 0.89 after.
After 25 bps of trading costs: 11.5% a year. EDGE OVER RANDOM
// DECADE BY DECADE
| ERA | STRATEGY | BENCHMARK |
|---|---|---|
| 1990s | 18.9% | 23.6% |
| 2000s | 2.8% | -2.6% |
| 2010s | 16.5% | 11.6% |
| 2020s | 17.2% | 14.1% |
// THE IDEA, AS PUBLISHED
Asness, Frazzini & Pedersen (2019), Review of Accounting Studies · 2019
- Quality score: z-scored profitability, growth and safety (low beta, volatility, leverage, distress risk)
- Payout (low net issuance) is added in some versions
- Long high quality, short junk within size groups, value weighted, monthly
A real computation on the QuantGPT warehouse, survivorship-free, walk-forward. Gross returns, no costs except where stated. Past performance is not a promise. Findings, not advice. COMPUTED 2026-09-24 20:47 ON THE QUANTGPT WAREHOUSE. COMPANIES THAT LATER DELISTED ARE NOT IN THIS UNIVERSE YET (A FIX IS IN PROGRESS), SO THE RESULT LEANS TOWARD SURVIVORS. FUNDAMENTALS BY FILING DATE. NOT INVESTMENT ADVICE.