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A Focus on Quality Companies

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When you buy a car or a home appliance, you will likely look for indicators of quality, because when you make a major purchase, you hope it will last a long time. Only after identifying a quality product will you consider price. The Parnassus Investments team believes this type of focus on quality purchased at a good price is also a great way to invest for Principles and Performance® over the long term.

Investing for Quality

What is a quality product? As a consumer, you know it when you see it. A careful consumer will look very closely to ascertain the quality of a potential purchase. But quality can be hard to define. The same is true for quality investments.

Quality has no universally agreed-upon definition in finance, so it’s important to understand the unique contours of each quality-focused investment strategy. Many investment managers rely on financial data to identify quality attributes of stocks. For example, they may consider a stock’s return on equity (ROE), debt-to-equity ratio, accruals ratio and earnings variability when determining its quality.

Parnassus Investments’ evaluation of quality includes looking at statistics, but it also goes much deeper. Parnassus undertakes an intensive, holistic examination of each company under consideration for investment. This deep research ranges from developing a robust understanding of the company’s competitive advantages to considering how their operations may fare as the planet’s climate changes.

You can read more about quality investing and why you may choose a quality-focused strategy in The Parnassus View entitled “A Focus on Quality Companies" by CEO Benjamin Allen.

Mutual fund investing involves risk, and loss of principal is possible.