While investors have focused on the “Magnificent Seven” stocks for several years, deeper analysis shows that other influences have also driven market returns. In particular, quality has been a powerful and consistent source of equity outperformance. In our latest Perspectives, we look at a definition of quality and how various quality factors have accounted for returns.
We found that quality companies typically have solid profitability, stable and growing earnings that create high free cash flow, and strong balance sheets. Companies with these attributes have weathered economic turbulence and strongly outperformed broader equity benchmarks. Our analysis shows that quality stocks have been clear differentiators, with the higher deciles significantly outperforming the lower deciles.
Consequently, given our belief that quality will continue to be rewarded, we believe investors should consider quality when constructing long-term portfolios.
The views expressed herein are those of Jennison Associates at the time the comments were made and may not be reflective of their current opinions and are subject to change without notice. This commentary is not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services. This commentary does not constitute investment advice and should not be used as the basis for any investment decision. This commentary does not purport to provide any legal, tax, or accounting advice. PGIM Investments LLC is a registered investment advisor with the U.S. Securities and Exchange Commission.
Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information, nor do we make any express or implied warranties or representations as to the completeness or accuracy. Any projections or forecasts presented herein are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated, based on assumptions, subject to significant revision, and may change materially as economic and market conditions change.
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