3 Stage Process

Quest aims to deliver above average absolute returns over time. Returns are generated by portfolios utilising our long-standing investment process. We invest with conviction.

The Quest 3 stage investment process has been developed over two decades. Each of the five members of the Quest investment team drive this process, every day.

Quest strongly favours businesses that can sustain above average returns on capital employed. We look for companies where the business quality is higher than implied by the current market value or share price. Quest clients are expected to accumulate wealth by being invested in stocks prior to the market fully recognising their intrinsic quality.

In each of our funds we construct a portfolio with the potential to generate significant returns over time. We do not invest on the basis of weight relative to any index.

We back our investment process and invest with conviction. Investors should expect the returns from the various Quest portfolios to differ markedly from benchmark returns.

This same investment process underpins each of the Quest funds. The Portfolio Manager for each fund uses this single process to construct a suitable portfolio with a strong regard for risk.

There are three stages in the Quest investment process:


Quality Assessment




Portfolio Construction

Stage 1

Quality Assessment

Stage 1 of our process is an assessment of the attributes of each business. This filter is known internally as Q-Stocks and involves 18 subjective tests. Stocks are scored in each category and ranked. This process provides a quality ranking that highlights both the strengths and the weaknesses of each business. We believe that the attributes of above average businesses are readily identifiable and that investing in these businesses early will deliver wealth accumulation for our clients.

There are three broad parts to our Quality Assessment ranking comprising 18 tests:

The quality assessment is a subjective exercise conducted by the five members of our investment team. Information gained from our extensive company visit program is critical to the process. The Q-Stocks process ranks each business into grades from “A” through to “D”. The A grade stocks will display a much higher frequency of attributes that we seek than the poorer D grade stocks.

There are 18 sub-tests within the above three categories and each is scored from one to six. Stocks are reviewed post an event such as annual or half yearly results, after a company visit or after gathering further relevant information. Stocks rated as A have the greatest potential to sustain above average returns on capital employed for extended periods. We consider A grade stocks tend to be rare and valuable. B grade stocks are somewhat more plentiful. Most stocks available are C grade. We will not invest in D ranking stocks.

Management is crucial to our analysis. The Quest company visit program is a key element of the process and we believe a competitive advantage. Our ability to conduct informed discussion with company management is critical. We are looking for particular attributes in relation to business understanding, experience, strategy, innovation and integrity.

The assessment of Business Sustainability will include understanding the business value proposition, the point of differentiation of the product or service, the potential for price erosion, an assessment of current and potential competition and the cost base of the business.

Financial Return focuses on the return on capital invested in the business, the visibility and predictability of earnings in the future and the ability of the company to sustain or improve returns over time.

The output of this stage is understanding the attractiveness and risks associated with each business.

Stage 2


Our bespoke valuation template records financial performance and forecasts future key metrics with an emphasis on understanding cash flow over the long term. This second stage is known internally as Q-Value.

Valuation is not an exact science being the product of assumptions. We believe our experience and team stability gives us a competitive advantage in forming those assumptions. The output is a target price that if attained is likely to lead to the sale of that stock. Target prices must be 15% above current price before we consider adding any stock to the portfolio. Each stock must stand on its own merits. We don’t invest just because a stock happens to be in an index.

The analysis is discounted cash flow based with a range of bespoke features. Q-Value develops our understanding of each business and the key drivers of value creation. We have a particular focus on the balance sheet and the degree to which capital is required to grow the business. Capital expenditure and working capital are factors often overlooked by the market, in our experience. Our assumptions are updated with any new information post a company visit, announcement, financial reporting or any other relevant event.

The output of this stage is an assessment of value and the potential return that may be available to investors.

Stage 3

Portfolio Construction

Having completed the Quality assessment and our Valuation, the Portfolio Manager of each fund can then construct a suitable portfolio. We have been accumulating wealth for our clients for nearly two decades using this process.

Ideally, Quest would find only invest in quality A grade stocks on behalf of our investors. Alas, equity markets are not that straightforward and A grades can trade at prices that are hard to justify. Our valuation discipline drives where we invest. Quest holds some A grade stocks and also invests in B and C grade stocks if the valuation provides a minimum 15% upside and the portfolio risk is acceptable. We do not consider D grade stocks to be investible. The team also monitors any change in rankings, which experience has shown to provide important signals.

The Portfolio Manager constructs a portfolio balancing the risk (from our Stage 1) with return (from our Stage 2)  according to the specific objectives for each of our funds. Getting this balance right is critical, in our experience.  

We carefully size individual stock positions to get the most return for the risks we take. We have a strong focus on capital preservation for our clients. At the portfolio level, we use quantitative tools to assess risk in this part of the process.

The output of this stage is a portfolio that has delivered attractive returns with carefully managed risks. We have a long track record in this regard. The ratio of outperformance (return) to the risks taken is known, in financial circles, as the Information Ratio. This ratio measured for our earliest fund (the Quest Concentrated fund started in 2005) compares very well over a long period of time.