Image source: Getty Images
At the moment, the stock market’s offering of ‘quality’ is up for grabs. This means that many fund managers using this quality investment strategy have been underperforming.
Is quality investing done? Or will it still make investors rich?
What’s going on?
For those wondering, this style focuses on high quality businesses with high returns on capital, reliable cash flow, and strong balance sheets. Therefore, they are usually very established businesses.
Indeed, well-known quality investor Terry Smith even makes a point of noting the average year of the company’s foundation in his company. A cashier portfolio. It is currently 1919, which means that they are more than a hundred years old in total!
Although there is some crossover, these investment styles can be broadly divided into the following four camps.
| Style | Important features | Risks/disadvantages |
|---|---|---|
| Quality | High profit, low debt, market leaders | Usually slow growth |
| Growing up | Strong revenue growth, driven by innovation | Sometimes the loss is often well known |
| Price | Lower measurement metrics, often pay dividends | Potential value (cheap for a good reason) |
| The momentum | Trends in the boarding market, driven by emotions | Can reverse quickly, high flexibility |
Without being loved
In 2025, there has been significant volatility in many quality stocks. According to Hargreaves Lansdown, the European quality market was 23 percent behind the value in 2025, as of December. The gap in emerging markets was more than 15 points and 13 in the UK.
There has been a sudden revival in UK cheap and cyclical stocks. Meanwhile, defense stocks such as BAE Systems have increased due to the shock of the country.
In the US, some AI-related growth stocks have exploded, notably Palantir again Nvidia. These are not ordinary stocks that a fund manager would buy because they do not generate reliable cash flow or are highly valued.
Terry Smith and Nick Train (another quality-focused investor) have both underperformed their estimates for five years in a row.
Sectors that are often considered ‘defensive’, including healthcare, consumer staples, and telecommunications, are still growing in value but lagging behind. These areas often form the backbone of quality-oriented funds because they are expected to provide continued demand and reliable returns..
Hargreaves Lansdowne.
Flexibility advantage
When fund managers abandon a certain philosophy, it is called a ‘drift style’. This is often viewed negatively, as opposed to ‘sticking to their guns’.
This is one advantage for retail investors like me – not to be bound by a strict investment mandate. I’m comfortable investing anywhere, whether that’s quality, cheap price/profit, or disruptive growth stocks. Or investment trusts and exchange-traded funds (ETFs).
To give you a taste, here are four very different investments that performed best in my portfolio in 2025:
| Return* | Kind of | |
|---|---|---|
| Aviva | +54% | Price/dividend stock |
| Games Workshop | +47% | Stock quality/growth |
| Nu Holdings share price | + 62% | Growth stock |
| BlackRock World Mining Trust | + 74% | Investment Trust |
This shows how staying diversified across themes/sectors/styles can yield strong returns.
FTSE 250 trust
Having said all that, I think that a quality investment style can still make investors rich. Market trends in circulation and investing come in and out of fashion.
On this basis, trains Finsbury Growth & Income Trust (LSE:FGT) may be worth a look.
This FTSE 250 The trust has a number of currently unpopular UK shares, incl London Stock Exchange Group, Rightmove, Auto Trader, RELXagain Diageo.
These falling stars have slowed you down. But they are the type of stocks that can pull back significantly if and when sentiment changes and there is a rotation back to quality from value.
That said, many are data companies that face theoretical disruption threats from AI, so this adds an element of risk. Also, there is a strong possibility that AI will make some software/platform businesses stronger because of their hard-to-replicate datasets.
Finsbury is not one I will buy, as I am currently looking at other investment trusts in the FTSE 250. But if quality returns to fashion, this trust could recover strongly.
