Investors are increasingly looking at “quality” stocks as a mechanism to minimise risk, Lonsec data has found.
The research house’s global equity sector review found an almost universal shift in discussion to quality companies as a way to mitigate risk.
“Lonsec has noticed an increased emphasis, most pronounced during this review cycle, by fund managers to highlight the ‘quality’ aspect of their portfolios,” Lonsec senior investment analyst Rui Fernandes said.
“Quality does have a trade-off though. Investors usually pay a premium to invest in companies with a solid track record of delivering growth.”
Lonsec said that since the global financial crisis (GFC), risk aversion has been an increasing driver of investment decisions in the market.
It said that as a result, product manufactures have been looking to develop new solutions or reframe existing ones to meet this increased demand.
The review found that managed volatility strategies were an emerging strategy offering the prospect of market-like returns but without the volatility.
It also found renewed interest in dividend-based global equity strategies.
“Quantitative managers are developing products that attempt to manage the volatility of the return stream,” Mr Fernandes said.
“Before the GFC, stable dividend paying companies were boring and uncool.”
“Similarly, there has been a shift in emphasis to the virtues of ‘quality’ companies within many existing strategies, with the desirability of stable and growing earnings streams, low debt and high ROE suddenly more attractive.”
