How investing in quality securities stands you in good stead
In the current environment of elevated inflation and the expectation of recession, investors will be rewarded for incorporating the quality factor into their portfolios
AMID the market volatility over the past few months, the quality factor has continued to perform well. Over the past three months, the MSCI USA Quality Index managed to deliver returns of 7.06 per cent, whereas the MSCI USA Growth Index and the MSCI USA Index had returns of -2.69 per cent and 4.91 per cent, respectively. The quality factor has also managed to deliver strong performance over the long term, having outperformed the broader equity market and even the growth factor by a significant margin over the past 20 years.
Given our view that the US economy is headed for a recession in 2023, we believe investors will be rewarded for taking on more exposure to the quality factor. But before we dive into the reasons why, let us define what quality investing is.
Quality investing can be defined as buying companies with durable long-term profitability, minimal solvency and financial risk, and high earnings quality. Quality can also be described as defensive, given that it is typically more resilient during times of market stress, especially during the later phase of the economic cycle such as today.
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