Equity investors have long gravitated toward quality companies — for good reason. These companies, often characterised by high free cash flow, high return on equity, low leverage and stable earnings, have historically performed well, especially during times of market stress. Yet recent performance has not always matched what many investors would typically expect from quality.

In our view, this is not a reason to question the merits of quality stocks and bonds, but a reminder that quality is not a single, fixed concept. Definitions vary across investors and market cycles, and the characteristics that matter most can evolve as leadership shifts.

Quality hasn’t disappeared; it has evolved. Over the last decade, many traditional quality leaders became expensive and faced slowing growth, margin pressure and earnings downgrades. Meanwhile, a wider range of companies — including those in more traditionally cyclical areas — have seen fundamentals improve, with stronger cash flow, returns and resilience. As new sources of durable growth emerge, we believe quality now extends beyond legacy sectors and narrow, backward-looking definitions.

This shifting landscape reinforces the case for active  management, where investors can look beyond a single quality screen and assess which characteristics are most durable in today’s market.