The Hunt for Quality: Searching for Durable Stocks in an Uncertain World

What You Need to Know

High-quality companies are always in style. In good times and bad, features that define resilient businesses and stocks underpin consistent and solid equity return potential. But to consistently find companies that meet the highest quality standards requires research, judgment and investing skill. In this paper, we identify the characteristics that can help guide investors to high-quality businesses, and present different investment approaches designed to capture these companies in equity portfolios.

The hunt for quality allows investors to tap equity return potential with smoother return patterns. Quality stocks with the right attributes tend to offer superior risk-adjusted returns, posting solid gains in rising markets and cushioning investors in a downturn. Over time, stocks with these all-weather characteristics have helped protect capital during events as varied as the bursting of the technology bubble, the global financial crisis and the coronavirus pandemic (Display).

For nearly 35 years, the MSCI Quality Index has delivered an annualized return of 11.1%, outperforming the broader MSCI World benchmark by 3.8% a year (Display). But to position properly in crisis periods, quality control is crucial. Investors who concentrate on quality in their everyday stock-picking processes are better equipped to identify durable companies that have what it takes to get through uncertain times and to thrive in a recovery.