In recent years, we’ve emphasized Exchange Traded Funds (ETFs) that invest in “high quality” corporations. While this sounds like something one should always do (and there is an argument for that), we believe there are better times to emphasize high quality stocks and there are times to emphasize low quality stocks. We believe we are in the former environment. Toward the tail end of mature bull markets (and during market corrections), high quality stocks tend to outperform.
What defines a “high quality” company? Quality, much like beauty, is often defined in the eye (or the spreadsheet) of the beholder, but common characteristics of high quality stocks include higher and more consistent profitability, stronger balance sheets (i.e., less debt), and higher dividend growth.