Focus on quality in growth equities

Outlook 2024Focus on quality in growth equities

Many investors are seeking some type of growth for their portfolios but finding it, in light of economic uncertainty, can be a challenge. Today, it can feel like we have more questions than answers. Concerns about a possible recession, inflationary pressures, and geopolitical issues are all present in today’s economy. How this translates to the stock market over the coming year is difficult to predict. Focusing on quality growth is one way equity investors can find some predictability and earnings consistency, at a time when uncertainty and market volatility is high.

Quality investing is easy to talk about but difficult to do well because of innate behavioral biases. By first focusing on durable quality characteristics, investors may be able to tip the scales in their favor.

Focus on quality first

We believe companies exhibiting profitability, competitive advantages, and durable pricing power are best suited in this particular environment.

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Profitability

Companies with thin profit margins are playing with fire in a world with rising interest rates and expectations for slowing economic activity.

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Competitive advantages

Competition erodes profitability. Wide-moat companies have competitive advantages that can help protect their potential growth – not only for today but for the future.

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Durable pricing power

Only the strongest businesses can consistently raise prices faster than their costs increase, without losing customers.

High quality outperforms over the long run

High-quality, profitable companies, as measured by return on assets (ROA), have proven to stand the test of time, through good periods and difficult ones, to provide competitive total returns with lower downside volatility.

High quality outperforms over the long run chart

Source: FactSet. Data as of September 30, 2023. Chart uses the Russell 1000 Growth Index. Equally weighted, rebalanced quarterly. Chart is for illustrative purposes only.

Past performance does not guarantee future results.

Listen to our podcast

Quality investing is easy to talk about but difficult to put into action. Senior Portfolio Manager Brad Klapmeyer explains our teams process for assessing quality and how it can help during market volatility.

Investment solutions to consider

Source: Morningstar. Data as of December 31, 2023 unless otherwise noted. Morningstar ranking is based on Morningstar risk-adjusted return measure that accounts for variation in a managed product's monthly excess performance. Past performance does not guarantee future results.

Outlook 2024 webinar

Hear from our panel of investment experts as they discuss actionable investing ideas that can help investors navigate the uncertainty and capitalize on opportunities in the months ahead.

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