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01st May, 2019
In our white paper, we analyse the performance of our proprietary definition of Quality (QUALITY) over the last 15 years comparing the risk and return profile to the MSCI definition of Quality. Our more complex definition has delivered better returns and risk-adjusted returns based on traditional portfolio metrics.
The unique attribute of equity investing compared with other asset classes, such as bonds or real estate, is the ability to reinvest excess profits at higher rates of return.
Figure 1 shows the representative total return on $1,000 invested over the last 35 years (1983-2018) in the MSCI World Index (World) and three-factor indices: MSCI World Quality Index (MSCI Quality), MSCI World Growth Index (Growth) and MSCI World Value Index (Value). The chart demonstrates that a Quality approach to equity investing, as defined by MSCI, has generated higher investment returns compared to global equity markets and other factor styles such as Growth and Value, as defined by MSCI, over long periods of time.
Figure 1: Growth of $1,000 invested in MSCI Quality, World, Value and Growth
Source: Davy Asset Management, MSCI, and Bloomberg as at 31st December 2018
Figure 3: Growth of $1,000 invested in QUALITY, MSCI Quality and World (2003 to 2018)
Source: Davy Asset Management, MSCI, and Bloomberg as at 31st December 2018 data in USD.
The strong cumulative performance is the combination of similar downside protection and significant outperformance in “up” markets over the period relative to the MSCI definition of Quality. The QUALITY portfolio has a strong return capture of 99% versus just 95% for MSCI Quality in “up” markets.
This insight is from our latest white paper ‘Quality Matters, Asymmetric Returns’ by Jonty Starbuck.
Please note that this insight paper was originally published in May 2019 by Davy Asset Management Ltd, prior to its merger on 29th November 2019 with another entity of the Davy Group, Davy Investment Funds Services Ltd. If you have any questions on this document or about this merger please contact any member of the team.
WARNING:Past performance is not a reliable guide to future performance. Some figures are forecasts, which are only estimates. They should not be relied upon to make investment decisions.
The information discussed in this article does not purport to be comprehensive or all inclusive. It does not constitute an offer for the purchase or sale of any financial instrument, trading strategy, product or service. No one receiving this document should treat any of its contents as constituting advice or a personal recommendation. It does not take into account the investment objectives or financial situation of any particular person.
This communication is directed at professional advisers only and should not be distributed to, or relied upon by retail customers