Second in a series of videos focused around quality investing themes, produced by Vontobel Asset Management’s Quality Growth Boutique, subadviser to the Virtus Vontobel Funds.
With durable earnings streams, quality companies can continue to grow through recessions while lesser companies see their stock performance decline. As economic weakness starts to put pressure on corporate earnings in 2023, quality businesses can be a source of resilience for investors.
Quality provides downside protection through the durability of the earnings streams of businesses.
It's not about market timing. It's not about being lucky. It's not about buying just cheap.
Quality is about buying earnings streams that are durable, even in weaker economic periods, because we believe over time the market has efficiency. It will tend to gravitate or mirror stock returns around the underlying earnings durability and growth of the business.
The real sweet spot or important period to own quality, we believe, is actually just now coming upon us. We've had rather robust economic times over the last decade. We're now seeing general weakness. We're seeing the risk of inflation, the risk of geopolitics. But that's only now just starting to filter through into broader earnings pressure on companies around the world and in the U.S.
This is the time when quality begins to become the most important because the defining characteristics of quality – that resiliency of this narrow group of companies versus a broader market or a broader index – this is where that differentiation begins to stand out the most.
So now as we come into 2023 and you start to see this broader economic weakness impact companies more generally, the difference of those quality companies and those underlying earnings streams will now be the period where it's most important to hold them as an investment strategy.
The commentary is the opinion of Vontobel Asset Management. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities.
Past performance is no guarantee of future results.
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