Intangibles as a Quality Attribute

16 Pages Posted: 4 Apr 2023

See all articles by Mattia Bacciardi

Mattia Bacciardi

The Vanguard Group, Inc.

Haifeng Wang

The Vanguard Group, Inc.

Jishan Mei

The Vanguard Group, Inc.

Miao Yang

The Vanguard Group, Inc.

Date Written: March 24, 2023

Abstract

Factor investing provides investors with a low-cost path to participate in long-term stock returns. The quality factor is among the most well-established equity factors with important empirical and practical implications. However, compared with other factors, the quality factor is less well defined. This article demonstrates that the intangible asset intensity (IAI) is a viable quality attribute that complements other commonly used quality characteristics. Our analysis shows that 1) IAI interacts and enhances other commonly used quality metrics, 2) IAI is not fully priced by analysts and existing commonly used risk factors, 3) the IAI premium is not specific to a particular sector and cannot be explained away by sector exposure, and 4) the IAI premium is not confined to a particular time period or a specific size bucket. Putting together, by aggregating IAI with other commonly used quality attributes, such as gross profitability, equity capital dilution, and change of net operating capital, our findings suggest that the quality factor would be enhanced by the inclusion of companies with a high level of intangible capital investment.

Keywords: Quality, Intangibles, Portfolio Management, Factor Investing

Suggested Citation

Bacciardi, Mattia and Wang, Haifeng and Mei, Jishan and Yang, Miao, Intangibles as a Quality Attribute (March 24, 2023). Available at SSRN: https://ssrn.com/abstract=4399521 or http://dx.doi.org/10.2139/ssrn.4399521

Mattia Bacciardi

The Vanguard Group, Inc. ( email )

100 Vanguard Blvd
Malvern, PA 19355
United States

Haifeng Wang (Contact Author)

The Vanguard Group, Inc. ( email )

100 Vanguard Blvd
Malvern, PA 19355
United States

Jishan Mei

The Vanguard Group, Inc. ( email )

100 Vanguard Blvd
Malvern, PA 19355
United States
610-669-2191 (Phone)

Miao Yang

The Vanguard Group, Inc. ( email )

100 Vanguard Blvd
Malvern, PA 19355
United States

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