At the beginning of 2021, many a forgotten market strategist suddenly sensed a comeback. After all, US Treasury yields shot up – from an all-time low, it should be noted – and stabilized again at a low level. This rise in interest rates was accompanied by a comeback of value stocks. The logic is strikingly simple: If interest rates rise, growth stocks seem even more expensive than value stocks, since discounting means that future cash flows have less value. But is this really decisive? Shouldn’t interest rates rather be seen as a measure of risk for an investor? In other words, don’t value stocks in particular look even worse when interest rates rise, due to their often significantly higher debt, for example? Ultimately, it is not the movements in interest rates that count, but the business reality for the sustainable success of a company and accordingly for the creation of added value for shareholders. As long as Value and Growth are only reduced to a few valuation metrics, short-term movements are rather left to chance. However, the dominance of growth in recent years is based on the fundamental economic strength of many growth companies. The fact that the liquidity provided by the cornucopia also boosted the momentum of these stocks was added to the mix. But if you really want to invest on the basis of convincing business characteristics and an attractive valuation, then you end up with Quality. Quality Investing, which we at Hérens Quality Asset Management initiated as one of the pioneers in this field in 2003, has a performance and risk character that is independent of Value and Growth. We have had a growth tilt in our portfolios for some time, but ultimately it comes down to holding the fundamentally strongest companies in the portfolio, for which the valuation is also attractive. It is not unusual for previously hard-hit stocks (typically from the value or non-quality segment) to rebound in the early stages of an economic upswing – which is hopefully where we are now, thanks to the successful fight against the COVID pandemic. But usually this rebound is based on certain base effects (e.g. higher travel, more physical entertainments, higher energy prices), and the structural problems of the business model of these companies have not simply disappeared, but only faded into the background in the short term. And that is precisely why growth stocks – in a low-growth environment that is still prevalent globally, nota bene – are in a better position, because they have consolidated fundamental strength based on their growth in the past. Of course, however, a distinction should be made between companies that, thanks to their growth, have brought their business fundamentals to an impressive level and those that have an impressive business model but have yet to prove sustainable execution without much imagination. And this is exactly where we end up again with a quality portfolio, which consists of companies that on the one hand are growing at an above-average rate, have an extremely solid foundation, and on the other hand also have the right valuation for this quality.