Why Quality Investing Still Matters: Lessons from Market Cycles

When an investment style underperforms for an extended period, many fund allocators lose faith in it—and in style-based investing altogether. Value investing was dismissed after the Tech Bubble (1996-2000) and the Global Financial Crisis (2008-2009). Similarly, Growth investing fell out of favour after 2001 and 2008. Now, Quality-based investing is facing skepticism after underperforming between 2016-2021, despite its recent recovery. Large asset managers, constrained by their size, have shifted to style agnosticism. Smaller boutiques, however, have followed suit to align with fund allocators’ preferences. At First Avenue, we remain committed to Quality-based investing—and our conviction is paying off. But this shift raises critical questions: If fund allocators outsource risk diversification to managers, who is maximizing alpha for smoother outcomes? Isn’t style agnosticism itself a style—and an inferior one at that? Our approach to Quality addresses its weaknesses by pairing competitively advantaged businesses with gold equities, capturing more upside while avoiding highly cyclical sectors. We leave the optimization of systemic and systematic risk to fund allocators.