Quality Growth, ex-Growth?

For much of the post-Global Financial Crisis period, quality growth investing occupied a privileged position within institutional portfolios. The proposition was straightforward: invest in businesses with durable competitive advantages, high margins, strong returns on capital, recurring revenue streams, and predictable cash flows. Over time, the compounding of superior business economics would overwhelm short-term market volatility.

The approach attracted significant investor capital. Quality growth strategies often delivered a compelling combination of growth, resilience, and lower volatility than many traditional growth strategies. For many asset owners, quality growth became the “sleep-at-night” component of their equity allocation.

However, a curious shift appears to have occurred in recent years. Many of the sectors and companies that historically exemplified traditional quality growth characteristics have experienced a meaningful slowdown in growth, even while many of their traditional quality characteristics have remained intact.

The result is an important question for investors: has the relationship between quality and growth changed?