High-quality firms have rewarded investors with superior long-run returns. Though the definition of the quality factor varies, these companies typically boast high profitability, stable earnings growth, and strong balance sheets.

The legendary investing strategy of Warren Buffett and Charlie Munger centered on buying high-quality firms at reasonable prices.

As these stocks tend to perform well during periods of economic downturns, high-quality ETFs have attracted a lot of cash this year. Stocks like Apple (AAPL Quick QuoteAAPL - Free Report) , Microsoft (MSFT Quick QuoteMSFT - Free Report) , Alphabet (GOOGL Quick QuoteGOOGL - Free Report) , NVIDIA (NVDA Quick QuoteNVDA - Free Report) and Meta Platforms (META Quick QuoteMETA - Free Report) , which are top holdings in many such ETFs, have surged this year, so it remains to be seen whether investors will continue to pile into these names in 2024.

The iShares MSCI USA Quality Factor ETF (QUAL Quick QuoteQUAL - Free Report) comprises companies exhibiting strong fundamentals like high return on equity, stable year-over-year earnings growth, and low debt levels compared to other peers in their sectors.

The Invesco S&P 500 Quality ETF (SPHQ Quick QuoteSPHQ - Free Report) identifies the top 100 S&P 500 stocks based on a quality score that considers their return on equity, accruals ratio, and debt levels.

The JPMorgan U.S. Quality Factor ETF (JQUA Quick QuoteJQUA - Free Report) focuses on about 250 Russell 1000 stocks with strong return on equity, consistent earnings growth, and low debt levels, while aiming to match the sector weights of the index.

To learn more, please watch the short video above.