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

Investment insights
From check-up to edge: a portfolio review case study that turned volatility into advantage
With rates rising more than 400 basis points in 18 months and asset correlations behaving badly, periodic portfolio reviews have moved from hygiene to edge. This case study shows how a disciplined ...Read more

Investment insights
Policy risk meets cost shock: Why investors are exiting housing — and what business can do about it
A sudden jump in holding costs and a rising ‘policy risk premium’ are pushing Australian property investors to sell, thinning rental supply and pushing rents higher. Industry surveys point to fear of ...Read more

Investment insights
Australia's investor shuffle as policy risks and rising yields squeeze the rental market
A quiet but consequential shift is underway: more property investors are exiting, citing higher holding costs and fear of future tax changes. That retreat risks worsening the rental shortfall just as ...Read more

Investment insights
State Street Markets report highlights resilient investor sentiment amid shifting allocations
In a climate of evolving global financial landscapes, State Street Markets has released its latest institutional investor indicators, revealing a sustained positive sentiment across the investment ...Read more

Investment insights
Consumer strength lifts Australia’s GDP — but the investment slump is the risk line every CFO should read
Australia’s June-quarter growth surprised to the upside as households and government spending outpaced a steep fall in public investment. The services economy is doing the heavy lifting, but the ...Read more

Investment insights
Gold prices surge to record highs amid economic uncertainty
In a remarkable start to September, spot gold prices have soared to unprecedented levels, breaching the US$3,500 per ounce mark. This surge has been fuelled by a complex interplay of macroeconomic ...Read more

Investment insights
First‑home buyers are rewriting the playbook and creating new profit pools
First‑home buyers remain stubbornly active despite higher rates, forcing lenders, developers and agents to retool products and processes. Beyond a checklist of steps, this is a strategic market that ...Read more

Investment insights
Disrupt or be commoditised: Why Australia’s brokers must rebuild their operating model now
A former Google executive’s warning to Australia’s brokerage sector is less a hot take than a strategic diagnosis: the industry’s economics are shifting, fast. AI-native competitors, policy-driven ...Read more

Investment insights
From check-up to edge: a portfolio review case study that turned volatility into advantage
With rates rising more than 400 basis points in 18 months and asset correlations behaving badly, periodic portfolio reviews have moved from hygiene to edge. This case study shows how a disciplined ...Read more

Investment insights
Policy risk meets cost shock: Why investors are exiting housing — and what business can do about it
A sudden jump in holding costs and a rising ‘policy risk premium’ are pushing Australian property investors to sell, thinning rental supply and pushing rents higher. Industry surveys point to fear of ...Read more

Investment insights
Australia's investor shuffle as policy risks and rising yields squeeze the rental market
A quiet but consequential shift is underway: more property investors are exiting, citing higher holding costs and fear of future tax changes. That retreat risks worsening the rental shortfall just as ...Read more

Investment insights
State Street Markets report highlights resilient investor sentiment amid shifting allocations
In a climate of evolving global financial landscapes, State Street Markets has released its latest institutional investor indicators, revealing a sustained positive sentiment across the investment ...Read more

Investment insights
Consumer strength lifts Australia’s GDP — but the investment slump is the risk line every CFO should read
Australia’s June-quarter growth surprised to the upside as households and government spending outpaced a steep fall in public investment. The services economy is doing the heavy lifting, but the ...Read more

Investment insights
Gold prices surge to record highs amid economic uncertainty
In a remarkable start to September, spot gold prices have soared to unprecedented levels, breaching the US$3,500 per ounce mark. This surge has been fuelled by a complex interplay of macroeconomic ...Read more

Investment insights
First‑home buyers are rewriting the playbook and creating new profit pools
First‑home buyers remain stubbornly active despite higher rates, forcing lenders, developers and agents to retool products and processes. Beyond a checklist of steps, this is a strategic market that ...Read more

Investment insights
Disrupt or be commoditised: Why Australia’s brokers must rebuild their operating model now
A former Google executive’s warning to Australia’s brokerage sector is less a hot take than a strategic diagnosis: the industry’s economics are shifting, fast. AI-native competitors, policy-driven ...Read more