With the S&P 500 pushing to higher and higher record levels in recent months, many investors are increasingly concerned about the bottom dropping out. Chasing momentum loses its appeal when valuations seem to be stretched uncomfortably thin. In this case, it may be more prudent to seek out targets with predictable earnings and cash flow—in other words, companies that signal "quality" via high returns on invested capital, consistent growth, strong balance sheets, and so on.
Those looking to pivot toward quality but finding it difficult to select individual names can turn to any of a number of exchange-traded funds (ETFs) based on this factor. Quality has a broad definition in the investment world and can mean profitability, stability, balance sheet strength, cash flow generation, and more, so investors would be wise to consider how any quality-focused ETF defines this factor before building exposure.
