Search the Internet for “measures of investment quality” and you are likely to find roughly one-tenth as many results as you would if you searched for “measures of investment return” or “measures of investment risk.” Quality, it seems, is hard to define.
Across the investment management industry, definitions differ. Here we summarise the five aspects of quality we consider most important when assessing companies for inclusion in a fund.
1) Business strategy and prospects
Before investing, we need to believe that a company’s business model is durable. We, therefore seek evidence of industry growth, a clear business strategy and solid execution of that strategy.
Some important questions include:
- Is the company overly reliant on acquisitions to sustain growth?
- Does the company have a distinct value proposition that gives it pricing power?
- Would we feel comfortable locking the stock in a box and not touching it for five years, or ...
