How quality investing works — and why arvy invests this way
September 8, 2025
6 min read
arvy's Teaser: Nearly every 3a app and robo-advisor in Switzerland invests your money in a broadly diversified index ETF. 1,500 companies, everything included, cheap, done. That's not bad. But it's not everything either. arvy does it differently: we invest in a concentrated portfolio of 25–35 of the world's best companies. Here's why — and why we believe it's the better choice for long-term investors.
The Problem With "Buying Everything"
An MSCI World ETF contains about 1,500 companies from 23 countries. Sounds like maximum diversification. And for most investors, it's an excellent start — far better than not investing, than speculating on individual stocks, or than paying for expensive active funds.
But when you look closer, "buying everything" has a few peculiarities:
You also own the bad companies. In an index ETF, highly leveraged firms, companies with shrinking margins, businesses that haven't made money in years, and those with questionable management sit right next to the brilliant ones. You buy everything, unfiltered.
Weighting by market cap isn't weighting by quality. The largest share of your money flows to the most expensive companies, not necessarily the best. When a stock is overvalued, you automatically buy more of it.
Concentration is already there — just not consciously chosen. The "Magnificent 7" (Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, Tesla) currently make up about one-third of the S&P 500. Buying an MSCI World gives you a massive US tech overweight — without consciously choosing it.
"Diversification protects against ignorance. If you can assess the quality of a business, you don't need 1,500 positions."
What Is Quality Investing?
Quality investing is a strategy that focuses on companies demonstrating fundamental strength — not hype, not momentum, not the cheapest P/E ratio. It's about the substance of a business.
The Four Pillars of Quality
1. High and Stable Profit Margins
Quality companies earn more per franc of revenue than their competitors. Their margins aren't just high — they're stable across economic cycles. That means: even in a recession, the company makes money.
2. Strong Competitive Advantages (Moats)
The best companies have a structural advantage that's hard to replicate: powerful brands (Nestlé, LVMH), network effects (Visa, Mastercard), high switching costs (SAP, Microsoft), regulatory barriers (Roche, Novartis), or scale advantages.
3. Low Leverage
Quality companies fund themselves primarily through their own cash flow. They don't need heavy debt to grow. In times of high interest rates, this is a massive advantage — highly leveraged firms come under pressure, solid ones don't.
4. Consistent Return on Invested Capital (ROIC)
Return on invested capital shows how efficiently a company uses money. Quality companies consistently achieve high ROIC — they turn every invested franc into disproportionately more profit. This is the strongest indicator of long-term value.
In One Sentence
Quality investing means: owning few companies that earn a lot, owe little, are hard to copy, and deploy capital efficiently.
Why Does Quality Investing Work?
The Academic Evidence
The "quality factor" is one of the most well-documented return drivers in financial research. Studies consistently show: portfolios of companies with high profitability, low leverage, and stable earnings have outperformed the broad market over decades — and with lower risk.
The reasoning is intuitive: a company that earns a lot today, has little debt, and possesses a structural competitive advantage will very likely still be earning a lot in 10 years. That's not speculation — that's business analysis.
Why Doesn't Everyone Beat the Market With It?
Because quality investing requires patience and discipline:
Short-term, the broad market can outperform. During speculative manias (dotcom, meme stocks, crypto mania), poor companies rise faster than good ones. Quality investors lag the index — sometimes for months. That's hard to endure.
Quality is boring. Nestlé, Visa, Microsoft — that doesn't sound as exciting as the next AI revolution or a meme stock. But boring wins over decades.
It requires real analysis. You can't just buy an index and be done. You need to understand which companies truly have quality — and which only look like they do.
How arvy Implements Quality Investing
arvy invests your 3a, vested benefits, and free assets in a concentrated portfolio of quality companies. These are businesses like Nestlé, Visa, LVMH, Microsoft, Roche, ASML — companies with strong brands, high margins, low debt, and competitive advantages that have endured for decades.
The arvy investment team analyses each company fundamentally. No algorithm decides, no index dictates — people with conviction select the positions. The portfolio is regularly reviewed, but not frantically reshuffled. Quality investing is a strategy of patience.
The Honest Comparison: Quality vs. Index
When Quality Performs Better
✅ In normal and difficult markets — quality companies fall less and recover faster
✅ In high interest rate environments — low-debt firms suffer less
✅ Over very long periods (10+ years) — the compounding effect on higher ROIC becomes cumulatively significant
✅ For investors who want to understand what they own — 40 concrete companies instead of an anonymous index
When the Index Can Be Better
🔴 During speculative booms — when bad companies rise faster than good ones (e.g. dotcom bubble, meme stock rally)
🔴 If you want zero effort — an MSCI World ETF needs no investment team or analysis
🔴 For maximum diversification — 1,500 companies is broader than 40
🔴 If you want to absolutely minimise fees — a Vanguard ETF costs 0.07%, quality strategies cost more
Our view: For investors starting with a few hundred francs per month who simply want to "buy the market," a cheap ETF is an excellent start. There's nothing wrong with that. Quality investing is a conscious next step for those who don't want to own "everything" — but rather "the best."
What You Own With arvy: Real Companies, Not an Anonymous Index
One of the biggest benefits of quality investing: you know what you own. Not an anonymous basket of 1,500 companies, but concrete businesses whose products you encounter every day:
Nestlé — You drink Nespresso, your child eats Gerber, your dog eats Purina. Profitable for 150+ years.
Visa — Every card payment flows through their network. Near-monopoly with 40%+ margins.
LVMH — Louis Vuitton, Dior, Moët. Luxury demand grows regardless of economic cycles.
Microsoft — Azure, Office 365, LinkedIn. Recurring revenue, nearly impossible to replace.
ASML — Sole manufacturer of EUV lithography machines. No ASML, no semiconductors.
Roche — World leader in oncology and diagnostics. Patents, pipeline, pricing power.
These aren't bets. These are companies that have been earning billions for decades and whose competitive advantages are strengthening, not weakening. Quality investing means: you own shares in the best businesses in the world.
What It Costs — and Why It Can Be Worth It
Quality investing isn't free. An MSCI World ETF costs 0.07–0.20% per year. arvy costs more because a real investment team stands behind the analysis.
Asking the Right Fee Question
The question isn't "what does it cost?" but "what do I get for it?"
An actively managed bank fund costs 1.5–2.0% — and 90% of them fail to beat the index long-term. That's bad.
A cheap ETF costs 0.1% and delivers market returns. That's good.
arvy sits in between — with a clear promise: A carefully selected portfolio of the world's best companies, professionally managed, at a fair price. Not the cheapest provider. But the best value for investors who want more than "buying everything."
Who Is Quality Investing For?
✅ Quality investing fits you if…
You invest long-term (10+ year horizon)
You want to know which companies you own
You believe in business quality, not market timing
You want to sleep better during crises (lower drawdowns)
You're willing to lag the index short-term
❌ Quality investing isn't for you if…
You want the absolute lowest price (then: cheap ETF)
You want to beat the market short-term (quality needs time)
You seek maximum diversification across 1,000+ stocks
You want to speculate on hype stocks or crypto
Frequently Asked Questions
"Isn't quality investing just active management?"
Yes and no. It's active in that humans select the companies — not an index algorithm. But it's not active trading. Quality investors buy and hold. Turnover is low. The goal isn't to beat the market next month, but to own better businesses over 10–20 years.
"Why not just buy a quality ETF?"
Quality ETFs (e.g. iShares MSCI World Quality Factor) exist and are a valid option. But they use mechanical screening rules (profitability, leverage, earnings stability) without human judgement. arvy goes a step further: the investment team analyses each stock fundamentally, evaluates management quality, moat sustainability, and valuation — things an algorithm struggles to capture.
"25–35 stocks — isn't that too little diversification?"
Academic research shows that the diversification benefit diminishes significantly beyond about 15 stocks. With 25-35 carefully selected companies across different sectors and regions, you're diversified enough — without the "dead weight" of hundreds of mediocre businesses.
"What happens when a quality stock crashes?"
Quality companies fluctuate too. But their recovery is historically faster because the business model stays intact. If Nestlé drops 20%, 8 billion people still drink coffee. If a highly leveraged startup drops 20%, you don't know if it'll exist in 5 years.
Ready to Own the World's Best Companies?
3a, vested benefits, or free investing — with arvy, you invest in a concentrated quality portfolio. No anonymous ETFs. Real companies. Professionally managed.
Start with CHF 1 — in less than 10 minutes.
Disclaimer: This article is for general information purposes and does not constitute investment advice or a recommendation. Past performance is not an indicator of future results. Every investment strategy carries risks, including the risk of capital loss. Please read the risk disclosures and investment regulations before investing. arvy is a FINMA-regulated asset manager. As of February 2026.
