Can you name some funds that invest in ‘quality’ stocks?

A recent article about quality stocks by Tom Stevenson, Fidelity Personal Investing’s Investment Director, prompted a few readers to write in. A couple of them asked us to name some funds, passive or active, that aim to hold quality stocks. Here are some ideas.

Active funds

Certain funds on Fidelity’s Select 50 list of recommended funds take a ‘quality’ approach:

BNY Mellon Long-Term Global Equity

Fundhouse, which independently chooses the Select 50 on our behalf, says this fund’s managers have a ‘quality’ bias, owning companies with reliable cashflows, strong brands and pricing power. The fund takes ‘a very long-term view when investing to allow for the power of compounding to work in its favour’, Fundhouse says.

• More on BNY Mellon Long-Term Global Equity

Rathbone Global Opportunities

This fund holds a number of stocks that qualify for the ‘quality’ badge, such as Nvidia, Microsoft and Alphabet (Google). The managers say they seek companies that are ‘durable in the face of change and difficult to imitate … [and] have a plan to grow rapidly without running out of money or overstretching their resources’.

• More on Rathbone Global Opportunities

Brown Advisory US Sustainable Growth

The fund is mostly invested in larger companies with a durable competitive advantage and steady rather than necessarily rapid growth. It has a focus on ‘quality’. The companies it seeks may have advantages such as established brands or a unique product or technology that enables them to have higher-than-average margins over the long term.

• More on Brown Advisory US Sustainable Growth

Liontrust UK Growth

The management team consists of seasoned UK equity managers with a clear investment philosophy. They seek to identify companies that possess intangible assets or other durable competitive advantages that will allow them to defy industry competition and sustain a higher-than-average level of profitability for longer than expected – very much the ‘quality’ approach.

• More on Liontrust UK Growth

There are also ‘quality’ funds outside the Select 50; here are a couple:

Fundsmith Equity

No one has done more to popularise the idea of ‘quality’ investing than Terry Smith, this fund’s manager. For many years he increased his investors’ wealth speedily yet smoothly, although performance has stagnated over the past four years. But Smith’s mantra of ‘buy good companies, don’t overpay, do nothing’, which echoes Warren Buffett’s approach, still appeals to many investors.

• More on Fundsmith Equity

Finsbury Growth & Income Trust

Nick Train is another British manager to adopt the quality approach and his long-term record has brought him many fans, although performance has been mediocre in recent years. His firm also runs the ‘open-ended’ Lindsell Train Global Equity and Lindsell Train UK Equity funds.

• More on Finsbury Growth & Income Trust

Passive funds

You many wonder how a passive fund can adopt a particular investment style if it blindly follows an index. The answer is that some indices are constructed especially to embody such a style; passive funds can then simply follow that index. Here are some examples:

Fidelity Global Quality Income ETF

The index that this exchange-traded fund tracks ‘is designed to reflect the performance of stocks of large and mid-capitalisation dividend-paying companies from developed countries that exhibit quality fundamental characteristics’. Top holdings include many of the ‘Magnificent Seven’ technology stocks. The dividend yield is a lowish 1.8%.

• More on Fidelity Global Quality Income ETF

iShares Edge MSCI World Quality Factor ETF

This fund tracks the MSCI World Sector Neutral Quality index, which consists of companies that exhibit stronger quality characteristics than rivals in their sector.

• More on iShares Edge MSCI World Quality Factor ETF

WisdomTree Global Quality Dividend Growth ETF

This ETF also holds ‘Mag 7’ stocks such as Nvidia, Microsoft and Apple as well as Coca-Cola and LVMH. The index the fund tracks is based on companies’ expected growth rates and historical averages for return on equity and return on assets.

• More on WisdomTree Global Quality Dividend Growth ETF

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Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. There is no guarantee that the investment objective of any Index Tracking Sub-Fund will be achieved. The performance of the sub-fund may not match the performance of the index it tracks due to factors including, but not limited to, the investment strategy used, fees and expenses and taxes. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.