What defines a quality stock?

Investment trusts

Identifying that a company is a quality business is a manager's most important task, but is this enough to make it a good investment? Jeremy Thomas of the Brunner investment trust explains

Investors often talk of their preference for quality stocks. A quick search on Google for the phrase ‘quality stocks’ will give you a plethora of articles detailing lists of supposedly quality stocks to own for the long term. But what really makes a quality stock? Is Diageo a good quality company, or GlaxoSmithKline, or Rolls-Royce? In our opinion, there are two key elements. Firstly, the company is capable of earning a return on its invested capital in excess of its cost of capital. Secondly, the business has a sustainable competitive advantage that allows these attractive returns to ...