Quality growth managers have struggled to keep up in recent years as value investing has begun a comeback, a trend that has shown no signs of abating so far this year.
The MSCI ACWI Value index is up 17% in sterling terms year-to-date, while quality, growth and the wider index have all lagged.
This builds on Schroders’ research released in September 2025, which found that, for most of the year, value had been outpacing quality, growth and high dividend alike.
For some managers, this underperformance of former quality growth juggernauts has been a buying opportunity, with J. Stern’s Christopher Rossbach earlier this year noting some quality stocks were selling off as much as 30%.
But for as much as proponents may like to dismiss declining share prices as the result of short-term speculation, Marcel Stötzel, manager of the Fidelity European Trust, argued that some quality growth sectors and stocks deserved some of their declines.
“There are some quality growth sectors that have definitely lost their mojo, you might say,” he told Portfolio Adviser.
One of the clearest examples of this, he said, is alcoholic beverages. This sector was a classic favourite of quality growth investors, he explained, prized for its defensive nature and long-term growth potential even during recessions.
See also: Buyback bonanza could signal floor for quality stocks
However, volumes have been declining for at least three years now, he said. For example, Heineken is down 20% over the past half a decade, while Carlsberg has slid roughly 14% over the same period, according to data from Hargreaves Lansdown.
“Sure, you can attribute that to a Covid hangover as much as you want, but three years is way too long for a hangover,” the Fidelity manager said. “The answer, legitimately, is that it’s no longer a hangover; there are structural reasons why the industry is worse than it used to be.”
Part of this is owing to the overarching concern with health and weight loss, seen through the rise of GLP-1s that have discouraged heavy alcohol drinking, Stötzel said. However, another part of it was that they were losing market share even to pre-mixed drinks, which have become increasingly popular over dedicated alcohol purchases, he said.
He also noted the decline in luxury goods businesses, including popular European stock LVMH, whose shares have fallen roughly 28% in the past five years. The Fidelity team sold it last year, after more than a decade of holding it.
“The thesis was that the luxury goods industry would keep growing and LVMH would grow beyond that, but on both of those points the thesis looked broken.
“Essentially for the simple reason that the industry had pushed pricing way too much during the pandemic,” he said. LVMH’s products ended up around 30% to 40% more expensive than they were pre-Covid, Stötzel added.
“The conventional wisdom around the time was that this doesn’t matter because LVMH sells to millionaires or billionaires,” he said. “It turns out even billionaires don’t like being ripped off.”
On top of that, the macroeconomic background had changed, he argued. During the pandemic, people were more aspirational with their money and willing to pay for expensive luxury goods because they were going out less. With this no longer being the case, LVMH’s high pricing looked increasingly difficult to sustain, Stötzel said.
Even some of the concerns over software businesses that dominated earlier this year looked warranted. “The market is looking forward on some of these stocks, saying that while they’re doing great now in two or three years as AI technology develops, they’ll be awful.
“I do have some sympathy with that,” he conceded. “Some of these software stocks definitely deserve the lower multiple they’re on because of these tail risks.”
That said, he did warn against tarring sectors with a broad brush. While several stocks had earned a falling multiple, investors should take care not to bucket them with many stocks that don’t, he argued.
While some quality growth stocks deserved it, for others it’s increasingly looking like investors may be able to “have their cake and eat it too,” Stötzel said.
For example, while LVMH now seemed less appealing as a luxury goods brand, something like Richemont was comparatively “loving life”, he said.
Richemont had reported 20% year-on-year revenue growth recently, Stötzel said. This was owing to the team pushing prices less during the pandemic, as well as more justifiable surges in prices on products such as their gold jewellery range, he added.
“Ultimately, I would argue the stocks that have earned a lower multiple are still a minority,” the Fidelity manager said. “The ones that don’t deserve it, but have fallen anyway, are still a majority.”
