Why it's a good time to be investing in quality companies

Over the past 10-year bull market, the benefits of active equity management have been less obvious as the rising tide really has lifted most boats. Since the Global Financial Crisis in 2008, and largely as a result of major central banks’ monetary policy easing, cheap money has been looking for a lucrative home which has led to many investors pouring funds into passive equity strategies. This has worked in that passive strategies generally buy the whole market which has meant that most stocks within the global index have performed well, regardless of the underlying quality of the individual companies constituting the index.

The benefits of investing in actively managed equity funds with a quality bias have recently become more obvious as the current bear market has revealed the underlying weaknesses of certain companies during stressful times. Whether it be high levels of debt or product offerings which are highly sensitive to poor economic conditions, there has been a clear separation of the wheat from the chaff in terms of performance. The Coronavirus (COVID-19) crisis has affected most sectors within the global economy, however, within those sectors some stocks have been more affected than others. Companies exhibiting strong balance sheets, strong market positions, a good level of defensiveness, or even flexibility within their supply chain have fared better.

The Global Leaders Equity Fund has performed well against the MSCI ACWI Index and our peers through the bear market. In the near term, we worry about the very survival of some poorly positioned companies with weak balance sheets that are in global indices and hence are held by passive investors. Our quality focus leads us to invest in stocks which can withstand global economic shocks and often emerge stronger. The stocks that we invest in are meant to help investors sleep well at night. Turbulent periods in equity markets are a given. However, by investing in companies with a strong competitive advantage, attractive long-term growth, sustainable business models, low volatility of earnings and which treat shareholders fairly, investors are likely to achieve compounding returns over longer periods, regardless of what the market does in-between.

Global Leaders Equity Fund vs Peers vs MSCI All Country World Index (USD)
Investment growth, 01/04/2015 to 31/03/2020
Global Leaders Equity Fund vs Peers vs MSCI All Country World Index - web
Source: Morningstar. The above investment performance is for illustrative purposes only. Income is reinvested on the ex-dividend date. The above performance is calculated for the portfolio and actual individual investor performance will differ as a result of applicable initial fees, actual investment date, date of reinvestment and dividend withholding tax. Past performance is not necessarily an indication of future performance. 


Global markets recover relatively quickly post market crashes. We can’t tell you when the bottom of the market will be, however, the chart below indicates the risk investors take when attempting to time the best entry point into the market and the risk investors take in withdrawing their cash during turbulent times. This is especially true if you are a long-term investor and the companies you have invested in are offering you attractive long-term growth fundamentals and should emerge from the current crisis relatively unscathed.

Market downturns and recoveries 
Downturns and recoveries - web
Source: Morningstar. The above investment performance is for illustrative purposes only. Income is reinvested on the ex-dividend date. The above performance is calculated for the portfolio and actual individual investor performance will differ as a result of applicable initial fees, actual investment date, date of reinvestment and dividend withholding tax. Past performance is not necessarily an indication of future performance. 

When markets do recover, it’s not necessarily passive inflows which will support individual stock performance. The great advantage of investing in an active manager is that we do not rely on the market to achieve good relative returns, but rather the individual merits of each stock which a fund holds. Investors may find solace in understanding what companies they own within a fund and it may also help them think more long-term about their investment, rather than just owning a tiny chunk of everything.

Ashburton Global Leaders Equity Portfolio A concentrated portfolio of the world’s most prominent companies, household names and industry leaders. Learn more
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Ashburton Global Leaders Equity Fund Focused investing through global market leaders Learn more