Quality investing: why fundamentals may regain their place in your equity portfolio
Is quality investing set for a comeback? As markets shift and fundamentals regain focus, we explore why resilience and predictability may soon lead equity strategies again.
Duration: 14 Mins
Date: 09 Oct 2025
This shift has posed challenges for active managers whose philosophy centres on investing in high-quality companies. However, as market conditions evolve, there are compelling reasons to believe that quality’s time may be coming again.
Understanding quality as an investment style
Quality investing focuses on companies with robust fundamentals—resilient earnings, strong balance sheets and prudent management. These businesses are typically better equipped to weather economic downturns and deliver sustainable returns over time.Historically, quality strategies have offered investors fewer tail risks—the possibility of rare but extreme events that can cause significant losses, a greater margin of safety, as well as less-volatile earnings streams.
Over the long term, quality strategies have delivered better outcomes than the broader market, offering a more predictable experience for investors (See Chart 1).
Chart 1: Quality investing works
Recent headwinds: growth & value’s dominance
In recent years quality as an investment style has faced significant headwinds. This environment has been particularly challenging for quality-focused portfolios investing outside of the US – where value has dominated. In contrast, when you include US assets, growth overall has done better. (see Chart 2).Chart 2: Tale of two markets
MSCI World - Growth outperforming Value
MSCI World ex USA - Value triumphant
Elsewhere, value stocks—often perceived as cheap—have outperformed, driven by hopes of a cyclical recovery. That’s certainly been the case in the past six months. While there is some merit to this narrative, markets may be getting ahead of themselves.
The challenges are structural as well as cyclical. The rise of passive mutual funds and exchange traded funds (ETFs) has reshaped investor behaviour; fee compression and the disruptive force of technology have altered the competitive landscape.
These dynamics have created headwinds for quality-focused strategies, but they also serve as catalysts for innovation and adaptation.
Why quality may be poised for a comeback
That said, there are early indications that the tide may be turning. We see three factors which suggest that a rotation from value to quality could be on the horizon:-
Economic headwinds and growth concerns. Global economies face multiple challenges, from slowing US growth to the impact of tariffs and geopolitical uncertainty. As these risks become more tangible, investors are likely to become more selective—favouring companies with predictable earnings and strong fundamentals. This environment should create a more favourable backdrop for quality to deliver better performance.
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Interest rates. Expectations of falling interest rates are another potential source of support. As rates decline, the relative appeal of stable, high-quality companies increases. Historically, periods of declining rates have seen a rotation from value to quality. The market consensus now points to interest rates falling this year and in 2026—generally beneficial for equities and quality alike.
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Broader technology leadership. While much of the recent market rally has been concentrated in a handful of US technology giants, there are signs that tech optimism is broadening. Chinese tech stocks are now as likely to rise as their US counterparts, and the benefits of investment in AI and data centres are spreading through global supply chains. This broadening of equity leadership could benefit quality-focused portfolios, particularly those with a global reach.
Fundamentals in focus
As the market outlook becomes more nuanced—with significant divergences in valuations amid slowing economic growth—company fundamentals are likely to come to the fore. This environment should favour stock pickers and those focused on quality.
In a world where change is the only constant, the enduring virtues of quality—resilience, predictability and sustainable growth—are likely to regain their appeal.
Investor sentiment is improving, with risk appetite rising, especially towards emerging markets (EM). EM equity allocations are at their highest since early 2025, and there is renewed interest in regional (ex-US) equity strategies as well as smaller companies.
However, while markets are currently pricing in a benign outlook for 2026, caution is warranted. That’s because considerable political and geopolitical risks remain and we’re heading into unchartered territory—where many of the old rules no longer apply.
Final thoughts
In an environment defined by uncertainty and change, quality offers a disciplined approach grounded in fundamentals. As investors seek to balance risk and return, quality will once again prove to be the style that prevails.
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