How Quality Investing Stands the Test of Time
We put quality investing to the test by examining the relationship between companies’ return on capital—or financial productivity1—and their share prices over a 25-year period.
The timeframe we examined covered a wide range of market environments including “growth” booms and busts, commodity super-cycles, equity market corrections, a global pandemic, and war. Despite these turbulent events, our findings suggest that the most financially productive companies outperformed consistently, on average.
The Power of Compounders
Our findings suggest that companies ranked in the top 10% for financial productivity can beat the market by an impressive amount. For instance, from 2013-2022, they outperformed the equal-weighted global equity market2 by an average of 2.5% annually, while companies grouped by the lowest levels of financial productivity, on average, underperformed.
Even more interestingly, companies that maintained high levels of financial productivity into the future produced even greater outperformance. If an investor had correctly identified which companies would sustain high levels of financial productivity in the following year, they would have outperformed the market by 5%, on average, over the same period.
As of 31 December 2022
Financial Productivity: Cash Flow Return on Investment
Average Relative Returns: equally weighted portfolio vs. equally weighted index
Source: Lazard Asset Management, Credit Suisse, FactSet, MSCI
What Makes Compounders So Exceptional?
Economic theory often suggests that high returns will eventually fade as competitors enter the market, attracted by the opportunity to capture those returns. Yet, in practice, some exceptional businesses defy this expectation. These companies possess strong competitive advantages, or economic moats, which allow them to keep competition at bay and protect their profitability.
At Mid Wynd International Investment Trust, we look for businesses with enduring competitive advantages, such as:
- Proprietary data banks that are essential for client operations.
- Strong brand recognition that fosters customer loyalty and trust.
- Critical components where products or services are hard for competitors to displace, particularly if they are already at low cost.
- Operating in niche industries where specialised expertise limits new entrants.
These attributes enable companies to maintain high returns on capital and defy expectations of fading profitability. When Compounders "beat the fade" and sustain their profitability longer than anticipated, the market may reward them with higher share prices—creating value for shareholders.
To hear from our fund managers and learn more about their global quality investment approach, we invite you to watch this short video.
1As measured by cash flow return on investment or return on equity.
2Represented by the MSCI All Country World Index (ACWI).
Further Information
Company Secretary
Juniper Partners Limited
Tel: 0131 378 0500
Email: cosec@junipartners.com
Post: Juniper Partners Limited, 28 Walker Street, Edinburgh EH3 7HR
Registrars
Computershare
Tel: 0370 707 1186
Web: https://www.computershare.com/uk/
Investment Manager
Tel: 0800 374 810
Email: mwy@lazard.com
Press Enquiries
Tel: 0115 907 8410
Email: martin.stott@bulletin.co.uk
Directors
David Kidd (Chair)
Hamish Baillie
Diana Dyer Bartlett
Anulika Malomo
Alan Scott
Complaints*
Complaints are to be sent to
the Company Secretary.
Email: cosec@junipartners.com
Tel: +44 (0) 131 378 0500
Post: Juniper Partners Limited, 28 Walker Street, Edinburgh EH3 7HR.
*As a shareholder of the Company you do not have the right to complain to the Financial Ombudsman Service (FOS) about the management of the Company. Complaints are dealt with by the Company Secretary.
Risks
The value of your investment may rise or fall, and your capital is at risk.
Any investment in an investment trust involves risk. You should be aware of the following risks when considering investing:
Past performance
Past performance is not a reliable indicator of future returns and does not guarantee future results.
The value of your investment
The value of shares, and any income from them, can fall as well as rise and investors may not get back the amount invested.
Market volatility
The value of the Company and any income from it can fall or rise because of movements in stock markets, currencies and interest rates, each of which can move irrationally and be affected unpredictably by diverse factors, including political and economic events.
Emerging and Developing Markets
Emerging and developing markets can face significant political, economic or structural challenges. The portfolio may experience delays in buying, selling and claiming ownership of investments and there is an increased risk that the portfolio may not get back the money invested.
Concentration
In view of the concentrated nature of the portfolio, the level of risk is expected to be higher than for broader based portfolios and the value may be more volatile.
Smaller companies
Securities of smaller companies may be less liquid, and exhibit more volatile returns, than the securities of larger companies.
Currency
The Company’s assets may be priced in currencies other than the portfolio base currency. Changes in currency exchange rates can therefore affect the Company’s value.
Charges from capital
Where charges are taken wholly or partly out of the Company’s capital, distributable income may be increased at the expense of capital, which may constrain or erode capital growth.
Leverage
The Company may operate with a significant amount of leverage. Leverage occurs when the economic exposure created by the use of derivatives is greater than the amount invested. Leverage may result in large fluctuations in the Company’s value and therefore entails a high degree of risk including the risk that losses may be substantial.
Important Information
Shares in the Company are a form of equity investment.
This information has been issued and approved by Lazard Asset Management Limited (“Lazard”), 20 Manchester Square, London, W1U 3PZ. Lazard is investment manager to Mid Wynd International Investment Trust plc (the “Company”) and is authorised and regulated by the Financial Conduct Authority.
This is a marketing communication and does not in any way constitute investment advice or an offer or an invitation to deal in securities.
Further information about the Company, including a Key Information Document, is available on the Company’s website www.midwynd.com.
Before investing, potential investors should also read the Company’s Investor Disclosure Document, in particular the ‘Risk Factors’, the Company’s Key Information Document (“KID”) and its most recent Annual or Interim Report.
Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Past performance is not a reliable indicator of future results.
The value of investments and the income from them can fall as well as rise and you may not get back the amount you invested.
Investments in securities, derivatives and commodities involve risk, will fluctuate in price, and may result in losses.
Certain assets held in Lazard’s investment portfolios may trade in less liquid or efficient markets, which can affect investment performance.
There can be no assurance that the Company’s objectives or performance target will be achieved. Any investment is subject to fees, taxation and charges within the Company and the investor will receive less than the gross yield.
MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any other securities or financial products. This report has not been approved, reviewed, or produced by MSCI.
Further Information
Tax Rates
The tax treatment of each investor may vary, and you should seek professional tax advice. The contents of these materials are confidential and should not be disclosed other than to the person or persons for whom it is intended.
Regulation
The Company is listed on the London Stock Exchange and is not authorised or regulated by the Financial Conduct Authority.
Information Subject to Change
The information and opinions expressed here are as of the published date and are subject to change without notice.
Non-Mainstream Pooled Investment (NMPI) status
The Company currently conducts its affairs so that its shares in issue can be recommended by financial advisers to ordinary retail investors in accordance with the Financial Conduct Authority’s (“FCA’s”) rules regarding non-mainstream investment products and intends to do so for the foreseeable future.
Shares in Mid Wynd International Investment Trust plc are excluded from the restrictions in the FCA rules which apply to non-mainstream pooled investment products, because they are shares in an investment trust.
The shares in the Company may also be suitable for institutional investors who seek a combination of capital and income growth.
Private investors should consult an independent financial adviser specialising in the acquisition of shares and other securities before acquiring shares. Investors should be capable of evaluating the risks and merits of such an investment and should have sufficient resources to bear any loss that may result.
©2025 Lazard, Inc. ©2025 Lazard Asset Management LLC.