How quality investing works — and why arvy invests this way
September 8, 2025
4 min read
Quality Investing Explained — And Why arvy Invests This Way
Most Swiss robo-advisors and 3a apps invest in 1,500 companies via ETF. arvy invests in ~30 of the world's best companies. Here's why — with academic evidence, the 4 pillars of quality, and an honest comparison.
"Diversification protects against ignorance. If you can assess a company's quality, you don't need 1,500 positions."
~30
Quality companies in the arvy Equity Fund — global, hand-picked
4%
Of S&P 500 stocks deliver all net outperformance (Bessembinder, 2018)
20–30
Positions sufficient for full diversification (Markowitz, Nobel 1990)
Contents
01The problem with "buy everything"
An MSCI World ETF contains roughly 1,500 companies from 23 countries. For most investors, that's a very good start. But "buy everything" has quirks rarely discussed.
You own the bad companies too. Highly indebted firms, shrinking margins, questionable management — alongside the brilliant ones. Unfiltered.
Weighted by size, not quality. Your largest exposure is in the most expensive companies, not the best. If a stock is overvalued, you automatically buy more of it.
And then there's Bessembinder (2018): of all stocks ever traded on US exchanges since 1926, only 4% delivered all net outperformance versus Treasury bills. The majority — 58% — underperformed bonds over their entire lifetime. A broad index works despite most of its positions, not because of them.
02What is Quality Investing? The 4 pillars
1. High and stable profit margins
Quality companies earn more on every franc of revenue than competitors — and do so consistently across business cycles.
2. Strong competitive advantages (moats)
Structural advantages that are hard to replicate: strong brands (Nestlé, LVMH), network effects (Visa, Mastercard), high switching costs (SAP, Microsoft), regulatory barriers (Roche, Novartis).
3. Low debt
Financed primarily from own cash flow. When rates rise, overleveraged firms suffer. Solid firms don't.
4. Consistently high return on invested capital (ROIC)
The strongest indicator of long-term value. Quality companies turn every invested franc into disproportionately high profits.
In one sentence
Quality Investing = Own few companies that earn a lot, owe little, are hard to copy, and deploy capital efficiently.
03Why does it work? The academic evidence
The "quality factor" is one of the best-documented return drivers in finance research. Fama, French, Novy-Marx, and Asness have shown: portfolios of profitable, low-debt companies with stable earnings have beaten the broad market over decades — with lower risk.
Why doesn't everyone beat the market then?
Patience — Quality wins long-term, not every quarter. Discipline — holding proven positions when the market does "more exciting" things. Fees — many active "quality" funds are too expensive and eat up the outperformance.
04ETF vs. Quality: An honest comparison
| Criterion | Broad ETF (MSCI World) | Quality Investing (arvy) |
|---|---|---|
| Positions | ~1,500 | ~30 |
| Selection logic | Market cap (largest = most) | Fundamental analysis (best = most) |
| Poor companies | Included (unfiltered) | Excluded |
| Typical TER | 0.15–0.25% | 0.147–0.22% |
| Crisis behaviour | Falls with broad market | Falls less, recovers faster (historically) |
| For whom | Broad base, passive | Long-term, quality-conscious, buy-and-hold |
Honest assessment
A broad ETF isn't "bad." For many investors, it's the right choice — especially if the alternative is not investing. Quality Investing is a refinement, not a refutation. But the most important step is always the first: investing at all.
05How arvy implements Quality Investing
The arvy Equity Fund holds ~30 global quality companies, analysed by Patrick Rissi, CFA and Florian Jauch, CFA using the 4 pillars. Buy-and-hold with quality filter — not quarterly rebalancing.
Skin in the game: Thierry, Patrick and Florian each invest over CHF 100,000 in the same portfolio.
Accumulating: All dividends automatically reinvested — the 2.4% reinvestment gap documented in our Dividends Guide is structurally eliminated.
Savings plan compatible: From CHF 1/month. Quality Investing works best when you stay invested consistently.
More on the philosophy: Why arvy. The tortoise problem of concentrated portfolios: The Tortoise Problem.
06Who Quality fits — and who it doesn't
Fits if: 5+ year horizon. You want to understand what you own. You don't need to beat the market every quarter. You want a structure that works through crises.
Doesn't fit if: You want to actively trade. You need crypto, options, or futures. You can't handle "didn't beat the market this quarter."
07Frequently asked questions
What is Quality Investing?
A strategy focused on few companies with high margins, strong moats, low debt, and high ROIC.
Is Quality Investing better than an ETF?
Long-term, the quality factor has historically outperformed with lower risk. But an ETF is always better than not investing.
Why only ~30 positions?
Markowitz (Nobel 1990): no significant diversification beyond 20–30 positions. Bessembinder (2018): only 4% of stocks deliver all outperformance.
What are the 4 pillars of quality?
1) High margins. 2) Strong moats. 3) Low debt. 4) High ROIC.
Do the arvy founders invest their own money?
Yes. Over CHF 100,000 each in the same portfolio.
What does Quality Investing cost at arvy?
All-in 0.69–0.89% management + 0.147–0.22% TER. Incl. transactions, FX, tax statement.
Further reading
Own less. Own better. Think long-term.
Quality Investing isn't a shortcut. It's the conviction that 30 carefully selected companies outperform 1,500 random ones over 10+ years. Not every quarter. But over the distance.
Written by Thierry Borgeat, reviewed by Patrick Rissi, CFA and Florian Jauch, CFA. Bessembinder (2018), Fama & French (2015), Novy-Marx (2013), AQR/Asness (2019). Markowitz (1952). Last updated April 2026.
Disclaimer: Historical factor returns are not a guarantee. arvy is a FINMA-supervised asset manager with a CISA licence. Imprint & Legal Information.
