Strategies · Core
ROA Effect within Stocks
Long high return-on-assets names and short low-ROA names — profitability as a quality sort.
Definition
Sort on ROA (or ROE/ROIC cousins), long high, short low, often size-neutral. Close to Novy-Marx gross profitability and Fama–French RMW. Accrual-heavy ROA is a quality leak.
Why it matters
Profitability is a core modern factor. It is how you stop value from owning junk.
Case
A high-ROA software name that is also expensive: the quality sort is long, value is short. Combined books need a rule.
How to read it
ROA vs gross profits, financials, and overlap with low-vol. One quality metric is enough until you prove a second.
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