Like Warren Buffet, Benjamin Graham or Robert Novy-Marx, many practitioners have used quality attributes to select stocks in their portfolios.
A recognised
investment
philosophy
Quality
Academics have demonstrated that quality stocks have outperformed the market over the long term while exhibiting lower volatility.
Long-term historical outperformance
Quality stocks are attractive on two distinct levels. First, since quality companies tend to generate high revenues, they can grow and compound wealth in the future. Second, thanks to their solid business models and financial strength, they can withstand unexpected events, such as an economic downturn or a pandemic.
An all-weather, balanced risk
High-quality companies act like the safe-haven of equity markets. In periods of uncertainty, equity investors tend to ‘flight to quality’, which creates a tailwind for such stocks.
Defensive in economic downturns
Companies with a strong brand, or those selling scarce or luxury goods, can protect their margins with price increases in an inflationary environment. Already profitable companies tend to benefit from similar advantages, arming them well for a fight against inflation.
Protect margins against inflation
Robust cash flows and solid dividends help mitigate the impact of rate increases on a company’s valuation.
Resilience in periods of
short-term
rate increase