In our last article, we explained what we mean by ‘quality’ in investment terms, but we recognise there are many other ways to define it. Regardless of how it is measured, the evidence is convincing. Businesses that generate strong profits, earn high returns on capital and maintain financial resilience have tended to support superior long-term shareholder outcomes.
Companies with higher profitability have often outperformed1 less profitable peers. Meanwhile, businesses that sustain excess returns on capital often do so because they possess durable competitive advantages2 and the ability to reinvest for future growth.
Financial strength also matters. Firms with lower leverage and more stable earnings have historically shown greater resilience3 during periods of market stress, limiting the risk of permanent capital loss and supporting their subsequent recovery.
Although the evidence of long-term outperformance is robust, it is also important to acknowledge that quality doesn’t work all the time. There are regular periods in which other investment characteristics hold sway, sometimes for extended stretches. We believe it is vital to remain disciplined through those phases in order to capture the longer-term benefits associated with quality investing.
Indeed, that’s what we’ve been doing now for almost twenty years, combining a focus on quality with valuation discipline. As illustrated below, JUSC’s long-term record reflects that consistency, while also demonstrating that periods of underperformance are a natural part of the journey.
