Invest
The value of quality in times of uncertainty
It stands to reason that so-called ‘quality companies’, i.e. those with high return on equity (or “ROE”), tend to be able to produce good shareholder returns over time.
The value of quality in times of uncertainty
It stands to reason that so-called ‘quality companies’, i.e. those with high return on equity (or “ROE”), tend to be able to produce good shareholder returns over time.
After all, if a company can generate high profits relative to its invested equity, it is likely to be well positioned to provide attractive investor returns over a sustained period – be it either through high dividends and/or high earnings growth from the reinvestment of profits.
Importantly, however, research has shown that as important as high ROE is, what is perhaps even more important as a predictor of return performance is a company’s ability to sustain that high ROE.
Companies with sustained high ROE have historically strongly outperformed those companies that are unable to sustain this. Therefore, truly “Quality” companies are those with both high current ROEs but also those with the likelihood of sustaining this high ROE over time.
Whilst this is relatively intuitive for investors to understand, what is perhaps more interesting is how these quality stocks have performed during market drawdown events. Historical numbers show that quality stocks have held up better than the wider market in drawdown events, whilst also holding their own in bull markets – with less volatility.
Investing in quality stocks over a sustained period of time has helped to shelter investors from the full effects of wide market drawdowns such as the GFC. This is worth considering, given concerns over current market valuations, and the ongoing macroeconomic uncertainty regarding the trade war between China and the U.S and lingering Brexit concerns, for example.
In this point in the market cycle, it would be reasonable for investors to be looking for quality companies that may provide sustained returns, and lower volatility.
Quality companies, therefore, have the potential for lower drawdowns during market falls, given their strong fundamentals.
In the research we have done on Quality companies, it appears as though some of the key indicators of sustained high ROE are low leverage (i.e low debts relative to equity) and high profitability (i.e. strong cash-flow generation ability).
Blair Modica is a Business Development Manager at BetaShares
RELATED ARTICLES
Investment insights
Financial markets focus on shareholder engagement as companies report results
In a week dominated by financial market developments and corporate announcements, companies are increasingly recognising the importance of shareholder engagement in driving market outcomesRead more
Investment insights
Future Generation Australia declares increased dividend amid strong investment performance
Future Generation Australia (ASX: FGX) has announced a significant outperformance against the S&P/ASX All Ordinaries Accumulation Index, reporting a 14.1% increase in its 12-month investment ...Read more
Investment insights
New business landscape shifts as regional areas and company setups gain traction
The latest data from the January 2026 Lawpath New Business Index reveals a dynamic shift in how Australians are choosing to embark on new business ventures. While the overall number of new Australian ...Read more
Investment insights
Good Return secures $1 million investment from Macquarie Group Foundation to boost women-led enterprises
In a significant development for women-led enterprises across the Asia-Pacific region, Good Return has announced a $1 million investment from the Macquarie Group Foundation into its Impact Investment ...Read more
Investment insights
Beyond the trophy: what the REB Awards 2026 reveal about real estate’s next competitive play
Nearly 900 submissions for just over 30 winning slots is more than a celebration—it’s a market signal. In Australia’s roughly $10 trillion residential property market, awards have become a strategic ...Read more
Investment insights
Parents are funding know‑how, not deposits: A case study in Australia’s new first‑home playbook
With listings tight and auctions unforgiving, a quiet shift is underway: parents are increasingly paying for professional buying expertise instead of topping up deposits. This case study unpacks the ...Read more
Investment insights
State Street Markets reveals a shift in investor risk appetite amid economic uncertainties
In a recent revelation by State Street Markets, the latest State Street Institutional Investor Indicators have showcased a notable shift in investor behaviour as uncertainty looms over global ...Read more
Investment insights
UniSuper welcomes back seasoned strategist Mark Himpoo as Senior Portfolio Manager
In a strategic move aimed at bolstering its in-house investment capabilities, UniSuper has announced the return of Mark Himpoo as Senior Portfolio Manager, Equities. Himpoo's return marks a ...Read more
Investment insights
Financial markets focus on shareholder engagement as companies report results
In a week dominated by financial market developments and corporate announcements, companies are increasingly recognising the importance of shareholder engagement in driving market outcomesRead more
Investment insights
Future Generation Australia declares increased dividend amid strong investment performance
Future Generation Australia (ASX: FGX) has announced a significant outperformance against the S&P/ASX All Ordinaries Accumulation Index, reporting a 14.1% increase in its 12-month investment ...Read more
Investment insights
New business landscape shifts as regional areas and company setups gain traction
The latest data from the January 2026 Lawpath New Business Index reveals a dynamic shift in how Australians are choosing to embark on new business ventures. While the overall number of new Australian ...Read more
Investment insights
Good Return secures $1 million investment from Macquarie Group Foundation to boost women-led enterprises
In a significant development for women-led enterprises across the Asia-Pacific region, Good Return has announced a $1 million investment from the Macquarie Group Foundation into its Impact Investment ...Read more
Investment insights
Beyond the trophy: what the REB Awards 2026 reveal about real estate’s next competitive play
Nearly 900 submissions for just over 30 winning slots is more than a celebration—it’s a market signal. In Australia’s roughly $10 trillion residential property market, awards have become a strategic ...Read more
Investment insights
Parents are funding know‑how, not deposits: A case study in Australia’s new first‑home playbook
With listings tight and auctions unforgiving, a quiet shift is underway: parents are increasingly paying for professional buying expertise instead of topping up deposits. This case study unpacks the ...Read more
Investment insights
State Street Markets reveals a shift in investor risk appetite amid economic uncertainties
In a recent revelation by State Street Markets, the latest State Street Institutional Investor Indicators have showcased a notable shift in investor behaviour as uncertainty looms over global ...Read more
Investment insights
UniSuper welcomes back seasoned strategist Mark Himpoo as Senior Portfolio Manager
In a strategic move aimed at bolstering its in-house investment capabilities, UniSuper has announced the return of Mark Himpoo as Senior Portfolio Manager, Equities. Himpoo's return marks a ...Read more
