A quality bias has been the right way to invest in emerging market equities for many decades.
By focusing on companies with stable long-term track records, trusted management and governance and high returns, stockpickers have been able to mitigate the significant macro risks and volatility affecting most emerging market economies.
In recent years, however, a purely factor-driven approach has been too restrictive. It potentially ignores the massive and transformative structural changes affecting companies, sectors and societies in the emerging world; one of the most exciting aspects of the asset class.
Nor does it consider the full scale of the opportunities on offer in the massive investment universe.
A 'quality screen' might have excluded some of the best stories of the past ten years.
For example, Chinese internet companies such as Alibaba and Tencent, or MercadoLibre in Latin America, which have been influential agents of change and have given consumers in less affluent regions far better access to information and reasonably priced goods.
In India, conglomerate Reliance Industries and auto manufacturers Maruti Suzuki and Eicher Motors have been some of the country's best performing major companies.
They have reshaped their strategies and offerings to take advantage of evolving domestic opportunities. Some of these companies might still struggle to make it through a 'quality screen'.
What does this mean for stockpickers and investors? Much depends on the definition of 'quality'.
Strong and improving environmental, social and governance standards are a must. But a focus on historic performance risks, such as concentrating too much capital in yesterday's winners, is also needed.
A mechanical approach, focusing on quantitative factors such as high, stable returns and steady, long-term growth, is better done by a computer.
A flexible and open-minded approach delivers the best ideas and returns.
Up-and-coming disruptive companies and business models can be the richest source of investment return in the emerging world.
Alistair Way is head of emerging markets equities at Aviva Investors
• Quality stocks often have defensive characteristics and can hold up better in a bear market
• A focus on ESG standards is a vital component of company analysis
• Quality stopped working as part of a 'factor-driven approach' in emerging market equities around 2012
• Easy to accidentally screen out some of the most exciting opportunities