Time available in the market is healthier than timing the market, the adage says. Likewise, to see “high quality” shares outperform over time, traders should be affected person. High quality shares are outlined as shares of firms with excessive returns on fairness, steady earnings, and low debt. They’re identified amongst traders for outperforming broader markets over the long term, as seen in Determine 1.
Determine 1: Inventory market efficiency (31 December 1998-30 September 2025). Over the long run, high quality shares have considerably outperformed the broader inventory market.
Supply: CCLA, Bloomberg, MSCI (returns web of withholding tax, in native foreign money). The above information is just not annualized. Previous efficiency is just not a dependable indicator of future returns. The worth of investments could fall in addition to rise.
Shoppers usually ask us: “How has my portfolio carried out this quarter?” or “What do you anticipate markets to do subsequent quarter?” They’re proper to ask that query, however single quarters aren’t all the time essentially the most useful manner of gauging long-term success.
In 2025, for instance, quarterly returns fluctuated, exhibiting how unpredictable short-term outcomes could be. When US President Donald Trump took workplace in January, he applied company-friendly tax cuts and deregulated key industries, strikes that usually create market tailwinds.
Nevertheless, throughout the first quarter, the MSCI World Index fell 3.6%. In April, President Trump introduced tariffs that had been, by many estimates, detrimental for the US financial system. However the index rose 9.5% within the second quarter. And between 1 July and 1 October this yr, the index rose one other 7%, regardless of extra tariffs.
Now, some “star” traders declare that they’ll time the inventory market. However most proof reveals that making an attempt to time the market often ends with poor returns. After we take a look at the information, systematic inventory market patterns have primarily performed out over the long term. And over that long term, high quality shares have traditionally outperformed different sorts of shares.
Payoff Takes Time
Adhering to any funding fashion, together with high quality, often signifies that a supervisor mixes durations of outperformance with durations of underperformance.
Determine 2 and Desk 3 beneath present the MSCI World Index (at the moment 1,320 firms from 23 international locations) with its smaller sub-indices the MSCI World High quality Index (300 highest-quality firms from those self same international locations) and the MSCI World Development Index (603 highest-growth firms) over the time durations acknowledged.
Determine 2: Quarterly, annual, five-year and 10-year returns of the MSCI World High quality Index, relative to the MSCI World Index (31 December 2008-30 September 2025). The longer the timeframe, the extra high quality has outperformed the MSCI World Index.
Supply: MSCI, CCLA. The above information is just not annualized. Previous efficiency is just not a dependable indicator of future returns. The worth of investments could fall in addition to rise.
The information for Determine 2 above is represented in Desk 3 beneath.
Column 1 of that Desk reveals the efficiency, in absolute phrases, of the MSCI World High quality Index, which is made up of firms with excessive returns on fairness, steady year-on-year earnings development, and low debt ranges, for quarters ending on the dates proven. Banking large JPMorgan, for instance, isn’t within the MSCI World High quality Index as a result of, like many banks, it has excessive debt ranges.
Column 2 reveals the relative efficiency of the MSCI World High quality Index versus the MSCI World Index. Column 3 reveals the relative efficiency of the MSCI World High quality Index versus the MSCI World Development Index. The MSCI Development Index captures shares with excessive development charges in revenues, earnings per share and in retained earnings. It contains, for instance, Nvidia and Microsoft, however not Fb mother or father Meta, as a result of Meta’s development is relatively low.
Columns 4 via 6 of Desk 3 present the identical absolute and relative efficiency, however for the one-year interval ending on the date proven. Columns 7 via 12 present the identical information for, respectively, five-year timeframes and 10-year timeframes.
Desk 3: Quarterly, annual, five-year and 10-year efficiency (2008-2025). The longer the timeframe, the extra high quality shares have outperformed the broader inventory market and development shares.
The left-hand aspect of Desk 3 is a patchwork of reds and greens, as high quality shares underperform and outperform in a sample that’s onerous to foretell from quarter-to-quarter. In contrast, the right-hand aspect is usually inexperienced, demonstrating that over the longer time horizon, high quality shares have outperformed the broader market.
The underside row of Column 11 in Desk 3 above reveals that the MSCI World High quality Index has outperformed the broader MSCI World Index over all 10-year timeframes since 1998. That’s a remarkably constant efficiency. Determine 4 reveals this efficiency in a line chart.
Determine 4: Historic outperformance of the MSCI World High quality Index over the MSCI World Index (31 December 1998-30 September 2025). Over longer durations, high quality shares have more and more outperformed the broader inventory market.
Supply: CCLA, MSCI. Previous efficiency is just not a dependable indicator of future outcomes. The worth of investments could fall in addition to rise.
High quality Over Development
High quality shares have additionally outperformed (at the moment widespread) development shares the longer you may have held them, in 85% of the quarters over a 10-year horizon. Solely rare, structural crises have upset that regularity. For instance, high quality shares underperformed development shares for six quarters in 2021 to 2022, when traders piled into development shares reminiscent of Peloton and Zoom throughout the Covid pandemic and lockdown.
For the quarters throughout which the 10-year efficiency of high quality shares lagged development shares, high quality shares had 10-year absolute returns between 178% and 335%, hardly a significant concern in efficiency phrases.
The underside row of Column 3 in Desk 3 is especially fascinating. The 49% (circled) demonstrates that development shares outperformed high quality shares barely extra usually on a quarterly foundation. Nonetheless, utilizing the identical returns over an extended run, e.g., 5 years or 10 years, high quality outperformed development 69% of the time (column 9) or 85% of the time (column 12), respectively.
Within the Lengthy Run
Why this paradox between marginal underperformance within the quick run and substantial outperformance in the long term?
Principally, throughout market crises within the final 25 years, costs for high quality shares fell lower than the broader market or costs for development shares. In the course of the international monetary disaster, as an example, costs for the standard index fell by a 3rd, peak to trough, and recovered in simply over three years. In contrast, costs for development shares fell greater than 40% and took greater than 5 years to get better, as proven in Determine 5 beneath.
Determine 5: MSCI indices throughout and after the World Monetary Disaster (2007-2009). High quality shares’ costs fell much less and recovered extra shortly than different classes of shares.
Supply: CCLA, MSCI. The above information is just not annualized. Previous efficiency is just not a dependable indicator of future returns. The worth of investments could fall in addition to rise.
As well as, high quality shares have had what some teachers name “persistent returns.” Once they outperformed, they did so for longer durations at a time, which compounded their constructive returns.
Lastly, high quality shares and development shares have completely different earnings traits. As of 30 September 2025, for instance, the 1.25% dividend yield of the MSCI World High quality Index was practically double that of the MSCI World Development Index (0.69%). This distinction in dividend yield signifies that, for development shares, share worth development is the dominant supply of funding returns. The efficiency of high quality shares, in contrast, depends on each share worth development and dividends. In different phrases: investing in high quality shares presents a extra diversified return than investing in development shares.
The Funding Supervisor’s Perspective
As lively portfolio managers with a high quality bias, we don’t simply comply with a high quality benchmark. As a substitute, we concentrate on why these high quality companies have their distinct traits. That features gauging their aggressive benefit and the way their development prospects are evolving. On the identical time, we purpose to keep away from high quality companies which might be so extremely priced that they threat damaging investor returns in the long term if that valuation had been to deflate.
It’s hardly ever easy for an funding supervisor to stay to a long-term technique at a time when short-term outcomes favor different approaches. We by no means cease fine-tuning our method, however we stay true to the core rules which have confirmed to work.
In that respect, our consumer relationship managers play an essential position. They’re key to laying out to shoppers what the distinction is between the inventory market’s short-term and long-term dynamics. Fortuitously, lots of our shoppers have the long-term outlook that has been properly served by investing in high quality shares.
A Decade within the Making
Totally different traders have completely different funding horizons, which can require completely different methods. If historical past is a information, the value to pay for high quality to outperform in the long term is persistence. It’s vital that traders have a practical view of their time horizon when deciding to spend money on high quality shares.
*With because of Michael Ekaette, CFA, and Max Burl.
