Over the past 18 months, MSCI Europe Quality Index stocks have underperformed the market average. These quality stocks include companies from various sectors (notably pharmaceuticals, industrials, consumer goods, and technology) and are typically characterized by high returns on capital, low leverage, and more stable earnings. Their recent underperformance reflects a combination of factors, including political uncertainty around the U.S. healthcare sector and the market's appetite for higher‑risk segments in recent months.
Quality stocks typically trade at a valuation premium to the broader market, consistent with their financial profile. As of January 13, 2026, the MSCI Europe Quality Index trades at 18.8x earnings versus 15.8x for the MSCI Europe, implying a premium of only 3 points – close to its lows in recent years.
Our analysis
Historically, valuation premiums for quality stocks reached similarly low levels at the end of 2013 and 2016. In both instances, this was followed by a period of re‑rating and relative outperformance over the subsequent two years. In 2014–2015, the MSCI Europe Quality Index gained 37.0% versus 22.9% for the MSCI Europe Index (outperformance of 14.1%). In a different market environment, from 2017 to 2019, the index rose 4.3% compared with 0.6% for the broader MSCI Europe (outperformance of 3.7%). While this does not imply that the pattern will repeat, the “quality” style appears well positioned for a potential return to stronger momentum.
Written on January 16, 2026. Opinions subject to change. This document has no pre-contractual or contractual value. It is provided for information purposes. The analyses and/or descriptions contained in this document should not be considered as advice or recommendations from Lazard Frères Gestion SAS. This document does not constitute a recommendation to buy or sell securities, nor does it encourage investment. This document is the intellectual property of Lazard Frères Gestion SAS - 352 213 599 RCS Paris 25, RUE DE COURCELLES - 75008 PARIS
