VanEck MSCI International Quality ETF (ASX: QUAL) could be a leading, quality exchange-traded fund (ETF) to consider.
What is the QUAL ETF?
The provider of this ETF, VanEck, says it gives investors exposure to a diversified portfolio of quality international companies listed on exchanges in developed markets around the world.
A lot of the portfolio, around 72%, is invested in businesses that are based in the US. Although plenty of the underlying earnings would actually come from across the globe.
Other countries with representation of at least 1% of the portfolio includes Switzerland (6.3%), the UK (4%), Japan (4%), the Netherlands (3%), Denmark (2.3%), Canada (1.7%), Ireland (1.7%), Germany (1.2%), Sweden (1.2%) and France (1%).
This ETF is invested in a total of 298 holdings.
What makes QUAL so quality?
The world’s highest quality businesses are in this portfolio because they have three fundamental metrics.
One, a high return of equity. That means the business makes attractive profit for how much shareholders have contributed to the business (initial capital and retained profit).
Two, earnings stability. It’s good to know that the companies in this portfolio can be profitable and reliable in most/nearly all situations.
Three, low financial leverage. Having little debt is a good sign. It puts them at less risk of going under, it shows they don’t need debt to operate successfully and it means little profit is lost to making (unnecessary) interest payments.
Portfolio examples
The following businesses make up around a third of the portfolio combined: Microsoft, Apple, Meta Platforms, Nvidia, Alphabet, Johnson & Johnson, UnitedHealth, ASML and Adobe. But, the entire portfolio is supposedly high quality.
Fees and returns
It would typically cost investors quite a bit if a fund manager were to create this type of quality portfolio – usually at least 1% of the portfolio value each year.
But VanEck is providing it at an annual cost of just 0.40%.
The QUAL ETF has produced an average return per year of around 20% over the last five years. The index it tracks has returned an average of 19.5% over the last decade.
I think it shows that a quality, global portfolio is able to achieve attractive returns and handily outperform the global index over the years.
However, past performance is not a reliable indicator of future performance.
Even son, I would be very happy to have this ETF in my portfolio.
