Quality Update December 2025
Since its launch in September, ByteTree Quality has added 11 stocks to the portfolio, and we will release our 12th stock in early January.
We will soon be over 50% allocated, on our way to being fully invested by spring 2026. On average, the companies so far have a volatility of 23%, a ROIC of 16%, a price-to-earnings ratio of 16x (with none above 20x), an FCF/EV yield of 5.5%, and a 7-year average revenue growth of 7%. The dividend yield of the portfolio is 4%, and most companies have a track record of dividend increases going back decades.
The thinking behind the service remains unchanged. Too often, we see investors in markets claiming to be “quality” investors, which seems to mean loving the hot, high-margin stocks of the last few years. In our view, quality stocks have generally been around for many decades, but they can occasionally be more youthful. Resilience is proven, and outperformance in previous bear markets is visible. Products are essential and hard to replace, brands are powerful, competition is stable, and their market position is strong.
Volatility is low because stability is high, and the market has learned this. A number of our stocks feature as the most resilient in the previous four bear markets, according to our analysis. This is for good reasons. High-quality companies typically have low debt and strong management teams, giving them both the capital and capability to make hay in a downturn – investing while others are pulling back, helping to grow their market share even further. The best companies prove resilient during a crisis.
We launched ByteTree Quality because we felt that true quality stocks were falling out of favour to an extreme degree, making it the perfect time to start building them into a portfolio. The global stockmarket is concentrated in America, in mega-cap stocks, and in AI to a level only seen at the peak of previous bubbles. In the shadow of this concentration are areas like quality, which have been starved of capital and attention, giving us a less crowded playing field. Investing is easier when the competitors are elsewhere.
We are incorporating value and momentum into our process to benefit from the additional sources of performance they can deliver. ByteTree Quality aims to identify the best companies in the world when they are undervalued and going up – nothing more complicated than that.
The final few months of this year have started to bear out our thesis, as speculative stocks’ incredible rally has ended, and the stability of great companies at good prices is starting to gain traction once more. Our portfolio is set up to benefit from quality, value, and momentum, and the early signs are positive. Now is a good time to invest in quality stocks.
Q4 2025 has seen several announcements from our companies, which we will comment on in today’s update. For our new readers, all previous Quality updates and recommendations can be found on our website, with the most recent portfolio summary published in our latest recommendation published on 11 December. And for those hesitant to take the plunge in subscribing to ByteTree Quality, we urge you to read our first and second notes, which have been unlocked for public viewing.
General - Your capital is at risk when you invest, never risk more than you can afford to lose. Past performance and forecasts are not reliable indicators of future results. Bid/offer spreads, commissions, fees and other charges can reduce returns from investments. There is no guarantee dividends will be paid. Overseas shares - Some recommendations may be denominated in a currency other than sterling. The return from these may increase or decrease as a result of currency fluctuations. Any dividends will be taxed at source in the country of issue.
Funds - Fund performance relies on the performance of the underlying investments, and there is counterparty default risk which could result in a loss not represented by the underlying investment. Exchange Traded Funds (ETFs) with derivative exposure (leveraged or inverted ETFs) are highly speculative and are not suitable for risk-averse investors.
Bonds - Investing in bonds carries interest rate risk. A bondholder has committed to receiving a fixed rate of return for a fixed period. If the market interest rate rises from the date of the bond's purchase, the bond's price will fall. There is also the risk that the bond issuer could default on their obligations to pay interest as scheduled, or to repay capital at the maturity of the bond.
Taxation - Profits from investments, and any profits from converting cryptocurrency back into fiat currency is subject to capital gains tax. Tax treatment depends on individual circumstances and may be subject to change.
Investment Director: Charlie Morris. Editors or contributors may have an interest in recommendations. Information and opinions expressed do not necessarily reflect the views of other editors/contributors of ByteTree Group Ltd. ByteTree Asset Management (FRN 933150) is an Appointed Representative of Strata Global Ltd (FRN 563834), which is regulated by the Financial Conduct Authority.
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