In recent years, ‘Quality’ stocks — those with robust balance sheets, conservative debt, and high returns on equity — have faced an unexpected downturn in European equity markets.
While historically these stocks have outperformed their benchmarks, the past five years have seen significant underperformance.
A new research paper by Carmine de Franco, Head of Quant Equity Portfolio Management, explains the reasons behind this underperformance.
The analysis reveals that sector biases and security selection have played a major role in recent underperformance. The paper then explores how portfolio construction and factor investing can be improved by neutralising such structural biases.
But the story doesn’t end there. The paper highlights that the cyclical nature of the Quality factor means today’s lows could set the stage for future recovery, as seen in previous market cycles.
It also discusses how valuation corrections and multi-factor strategies can help investors navigate short-term volatility while maintaining exposure to Quality for the long term.
Why should you read this paper?
- Discover the real reasons behind Quality’s recent struggles in Europe.
- Learn how sector biases and portfolio construction impact returns.
- Gain insights into strategies for mitigating risk and enhancing resilience.
- Understand the historical context and what it means for future opportunities.
Whether you’re rethinking your approach to factor investing or seeking to understand the latest market dynamics, this paper offers actionable perspectives and data-driven analysis for professional investors.
* References to specific companies/securities are for illustrative purposes only and should not be considered as a recommendation to buy or sell or investment advice. BNP Paribas Asset Management may or may not have invested in these securities. Information presented herein reflects BNP Paribas Asset Management’s views at a particular time.
