Quality funds outperform global benchmark

afr.com:

September performance numbers are in and Morningstar data shows funds that put their faith in “quality” companies outperformed the MSCI World Index over the past year.

Chief Investment Officer at GCQ Funds Management Doug Tynan. Louie Douvis

Doug Tynan’s GCQ Flagship Fund returned a whopping 41.1 per cent after fees thanks to holdings in out of favour US tech giants Alphabet and Meta.

Also besting the index were Stephen Arnold’s Aoris International Fund, up 24.89 per cent, and Bob Desmond’s Claremont Global Fund, charging ahead 23.61 per cent.

The MSCI World Index (AUD) returned 21.49 per cent over the period while the MSCI World ex Australia Quality Index (AUD) gained 27.69 per cent. The quality index is heavily weighted towards US mega caps like NVIDA, Microsoft, Apple, Meta, Visa and Alphabet.

Trying to put a definition around the word ‘quality’ is fraught but could go some way to explaining the divergence in returns across managers. Some traits typically considered to be indicative of quality companies include high-quality management, strong barriers to entry, a good balance sheet (low debt), stable earnings, consistent growth and high returns on invested capital.

For Aoris’ part, its portfolio is industrials and technology-heavy with holdings in electronic and fiber optic cable producer Amphenol, consulting tech giant Accenture and uniform supplier Cintas.

Claremont has a broader sector exposure with major holdings across financial services, tech and healthcare.

Interestingly, both have relatively low exposure to the ‘so-called’ magnificent seven – Apple, Microsoft, Alphabet, Amazon, Nvidia, Telsa and Meta. The fund’s latest disclosures show Aoris holds Microsoft and Claremont holds Alphabet and Microsoft.