Three reasons why there's still value in 'quality' stocks

WE have experienced a modest cyclical rebound in a world of sluggish growth. Opec's agreement to cut output for the first time since 2008 and Donald Trump's US election victory, with the anticipation of fiscal stimulus, have triggered a normalisation in inflation expectations, with rising rates and steepening yield curves in the US.

In turn, this also gave rise to a shift in global equity markets which resulted in a rotation away from defensive yielding sectors such as utilities, telecoms, healthcare and consumer staples in favour of lower quality "cheap", leveraged, capital-intensive and more cyclical sectors, notably banks, materials, energy and consumer discretionary.

"Quality" performed as expected in this "risk-on" environment, and has recovered so far this year as these companies have yet again shown their resilience, and as the reflation trade has begun to falter.