Investing in quality stocks sounds good, but it can mean different things to different people. Durable competitive advantages, strong profitability, low accruals, strong balance sheets, dividend growth, and consistent earnings are often among the attributes associated with quality. No matter how they are defined, quality stocks won't always keep pace with the market, but they can offer better downside protection.
One of the best quality investment strategies available is iShares Edge MSCI USA Quality Factor ETF (QUAL), which carries a Morningstar Analyst Rating of Silver. While it probably won't beat the market in strong rallies, this low-cost strategy should hold up better than most of its peers during market downturns and offer better risk-adjusted performance over the long term.
Alex Bryan, CFA has a position in the following securities mentioned above: USMV. Find out about Morningstar's editorial policies.