Investment strategies… what is considered Quality? What is considered Value?
“Quality investing is a strategy based on a set of clearly defined criteria that seeks to identify companies with outstanding quality characteristics whereas value investing is a strategy based upon the perceived undervalue of an investment and therefore buying it for potentially less than its true worth.”
It is greatly debated which of these is the most efficient strategy. In this article we look to determine which strategy is most appropriate for our customers.
Here at SN Financial, we compare and contrast the two strategies by analysing the MSCI World Quality and MSCI World Value indexes.
Figure 1 shows month by month performance of the MSCI World Quality and MSCI World Value indexes. You can see that right up to October 2020, Quality had outperformed Value. October and November are the first times over this 12 month period that Value outperformed Quality. At first glance, this illustration gives the impression that whilst Quality has outperformed Value over the first ten months, it is not necessarily the most suitable strategy in the shorter term.
Figure 2 shows cumulative performance of Quality vs Value over the past 12 months. From this, it can be seen that Quality grew by more than Value pre Covid, fell less than Value during the initial market downturn and overall, in this period has provided capital growth. It’s only from the start of November that the gap began to reduce between Quality and Value.
Figure 3 shows cumulative performance of Quality vs Value for the entire dataset available (31/12/1998 – 01/12/2020). Quality has outperformed Value over the long term, mainly from 2008 onwards (post-Financial Crisis). Value had outperformed Quality previously, however that was in completely different market conditions. This illustration shows the way markets have changed. Quality, as a long term strategy has proven more successful.
This is not to say that value investing is an inappropriate strategy, it has its place in certain circumstances, such as short-term or opportunistic investing. Quality investing in a long term approach, due to the fundamentals of the strategy, can provide solid and more consistent returns and has become an integral part of our investment propositions.
For more information contact Jack Jones, DipPFS
This article is based upon statistical information provided by SN Financial Services Limited via FE Analytics on 04/12/2020.
The value of your investments can go down as well as up. Past performance is no guarantee of future performance.