The VanEck MSCI International Quality ETF (ASX: QUAL) is a high-quality exchange-traded fund (ETF), that I think investors should know a few things about.
At close to $6 billion in size, this ETF is one of the largest on the ASX, according to VanEck.
Launched in October 2014, it has been operating for close to a decade and has performed very well for investors. There is every chance it could continue to win because of a few different factors, which I'll discuss below.
High-quality
As the QUAL ETF's name suggests, the fund invests in quality businesses. According to VanEck, they are some of the world's highest-quality companies based on fundamentals.
Firstly, the companies the fund invests in must have a high return on equity (ROE). That means they must deliver a high level of profitability for the amount of shareholder money retained in the business.
Secondly, they must have earnings stability. In other words, they don't typically see large profit declines.
Thirdly, the ETF's holdings should have low financial leverage, meaning their balance sheets should be in good shape with low debt levels.
When you combine those factors together, you create a strong portfolio of high-quality holdings from across the world.
Low fees
The QUAL ETF's portfolio comes with an annual management fee of just 0.40%. That is more expensive than other ETFs like the Vanguard MSCI Index International Shares ETF (ASX: VGS) and the iShares S&P 500 ETF (ASX: IVV).
However, the QUAL ETF has its quality overlay, which helps it deliver excellent long-term returns.
Plenty of active fund managers charge a management fee of at least 1% of the fund's asset value, so the QUAL ETF is good value for its price, in my opinion.
Diversification
This ASX ETF owns approximately 300 businesses across a broad range of geographies and sectors, giving it a great level of diversification.
Companies representing several countries — including the United States, Switzerland, the United Kingdom, Denmark, the Netherlands, Japan, France, and Canada — have a weighting of at least 1% in the portfolio.
This is not a specialised US tech-focused ETF — it's exposed to various sectors. IT makes up around a third of the QUAL ETF portfolio, but other sectors with sizeable weightings include healthcare (17.3%), industrials (12.3%), communication services (12.1%) and consumer staples (9.9%).
Foolish takeaway
According to VanEck:
Investments focusing on companies with quality characteristics have delivered outperformance over the long-term relative to global equity benchmarks.
Since its inception, the QUAL ETF has delivered an average annual return of 16.6%. Past performance is not a reliable indicator of future performance, but I think it can keep performing well because of its quality and diversification attributes.
