Global Matters Weekly – Enduring Quality
Quality is possibly the most subjective factor you will come across and one that is likely to differ depending on who you ask. Unsurprisingly, most investors would claim that they are investing in quality businesses, yet the results can vary wildly across these strategies – so what is quality and how do we define it?
At Momentum we define quality businesses as those that have demonstrated a high and stable level of profitability over the long term. These businesses typically benefit from strong economic ‘moats’ (defendable competitive advantages) which enable them to sustain above average returns over longer periods. The businesses that fit these criteria generally have low capital intensity (with low reinvestment requirements), low leverage, strong cash flow generation and strong intellectual property such as brands.