Quality Growth Boutique

Investors have been chasing their favorite AI names around the track, without considering how they could sustain their earnings growth for a prolonged period or through a recession. As long-term investors, we aim to remain focused on resilient companies with durable business models, which we believe will finish the race.

Navigating challenging markets requires assessing earnings and revenue trends and digging into balance sheets. But financial metrics alone can be backward looking. A fundamental understanding of industries, companies, and markets can provide important insights that can help avoid hidden risks and identify overlooked growth drivers.

Previously considered a niche strategy, quality investing is popular today for a simple reason – it has worked. While there are many nuances in defining a quality company, we focus on five convictions that we believe separate us from other managers.

Former journalists are a key part of the Quality Growth approach. Their unique skill set brings fresh perspective and sparks healthy debate during the research process. This has been shown to help identify trends ahead of the market, avoid potentially costly investment mistakes, and test new and existing investment rationales.

Child labor and imposing unnecessary medical procedures on women were recently identified in the sugar industry in India. While multinationals such as Pepsi and Coca-Cola are not directly linked to poor labor conditions, they can affect change. As active investors, we engage with our portfolio companies on these important issues.

A company’s competitive advantages are referred to as its moat. Far from castles and the countryside, it is important to analyze the strength and durability of a company’s moat before investing. Since moats can be wide or narrow and change over time, competitive advantages must be constantly monitored.

Many US investors are overweight domestic versus international strategies for the wrong reasons – home bias and benchmark anchoring. In our view, investors should focus on great companies, regardless of where they are domiciled. An active international strategy can help US investors expand their opportunity set, diversify risks, and improve their portfolio returns.

Adding women to corporate boards can improve the impact a board has on company performance. Yet progress has been slow. Companies that recruit former CFOs and CEOs simply cannot find enough female board members. Expanding talent pools can bring more women into the fold.

We believe answers to critical questions about weight loss drugs will help determine the sustainability of success that some pharmaceutical stocks have enjoyed: How many people will be on the drug, and at what price? Which pharma company will be the winner of the R&D race?

Is a company that sells a $300 t-shirt a better investment than one that sells a $10 t-shirt? The answer lies in the strength of a company’s brand and, in turn, its pricing power. Or course, profit margins are an important consideration.

David Souccar, portfolio manager and senior research analyst, explains why, in the quest for quality, your portfolio shopping basket would be incomplete without a trip to the international aisle.

Portfolio Manager David Souccar identifies three types of quality companies: Leaders have a rare combination of high returns and high predictability, Defenders grow slower but can protect in down markets, and Opportunity seekers can profit in uncertainty but are less predictable. Like a high-performing team, a successful quality portfolio has the optimal combination of all types of players.