Quality's Peace Dividend

In the short term, quality stocks have similar market reactions to bonds. They are stable companies with resilient cash flows, which can be safely forecasted long into the future. Thus, they are the most similar to bonds of any equity category.

However, their behaviour only mirrors bonds in the short term. Over longer periods, the growth they deliver, through volume increases, price growth, and shareholder returns leads them to dramatically outperform bonds. They benefit from decades of compounding.

That will come, but for the moment, they dislike the higher inflation and interest rates that have come about as a result of higher oil prices. The quality portfolio has nonetheless been resilient, and the markets are starting to offer a broader set of compelling opportunities for addition. It is a bright future for quality investors.

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