Fourth 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.
Don’t expect the worst but prepare for it. Vontobel Quality Growth Boutique seeks to provide defensive performance during bad times and attractive returns in good times. CIO Matt Benkendorf explains what taking measured risk means for its portfolios.
So now as we move into 2023, we're likely to see broader weakness across large industries and sectors. The more narrow subsegment of quality companies will certainly be more resilient relative to those.
A quality portfolio has certain construction characteristics that are consistent over long periods of time. For Vontobel Quality, that's often investing in certain sectors and not investing in certain other sectors.
We typically have long-term strong positions in areas like consumer staples, healthcare, high-quality tech businesses, often some narrower high-quality companies in the consumer discretionary space, or in some industrials that are not cyclical in nature, but more predictable in the underlying business model that they have. This is often what makes our portfolios look a bit different than our benchmark and peers.
Also, when you look at our characteristics, you tend to see much less earnings dispersion over time, or very low volatility in the earnings streams of our companies, which filters through into lower earnings volatility or investment returns in our portfolio. These are the defining characteristics of our style.
There's an old saying that the best offense is good defense. At the end of the day, what we want to be is in very defensive, durable businesses, but businesses that are still growing. We don’t believe we want to just hunker down. Investing is an optimist’s game over the long term. It's a business of taking risk for long-term returns.
But it doesn't mean that you shouldn't take careful, measured risk. We believe if you invest in quality companies, you're able to have your cake and eat it too, as they say. You can own defensive, durable businesses that will protect you and allow you to sleep well at night. But you won't sacrifice the upside because you can also own quality businesses that are compounding their underlying earnings at a high rate of return.
And that's what your portfolio returns will tend to cluster around over time. So, portfolio returns can be durable and defensive during bad times but also compound at an attractive rate through good times, and that's the careful balance you want to strike.
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.
All investments carry a certain degree of risk, including possible loss of principal.