Why quality stocks will continue to outperform

In our view, a quality company has a sustainable competitive advantage, strong organic growth options, high return on capital, excellent management, limited need for capital expenditure or debt and reasonably predictable long-term earning streams. Based on our experience, we can carefully define and quantify these characteristics. Quality companies should outperform over time regardless of prevailing economic conditions or current investment fads. In the end, share prices ultimately follow earnings. A prime example of the superior growth of a quality business held in our portfolio is Domino’s Pizza Enterprises (DMP). The share price of DMP has more than doubled over the calendar year to 31 December 2015. Due to the company’s sustainable competitive advantage and strong value proposition to consumers we are confident that this growth will continue. Presently, DMP is trading at a significant short-term premium (high PE ratio) to our portfolio and the market. We believe this is warranted due to its strong earnings momentum, exceptional management team and decade plus growth outlook. (VIEW LINK)