The ASX-listed exchange-traded fund (ETF) VanEck MSCI International Quality ETF (ASX: QUAL) is already a position in my portfolio, and I'd be happy for it to be the only one I buy for the rest of my life.
There are a few different qualities that I'd want to see from the ideal fund. I'd want to see good diversification (including geographic), strong holdings to enable good returns, and reasonable fees.
For me, the QUAL ETF ticks all of these boxes, and I think it can continue to do so for the rest of my life. Let's look at those three elements that I'm looking for.
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Strong holdings to enable good returns
This fund aims to give investors exposure to a portfolio of businesses that are ranked among the highest-quality companies in the world.
To be considered for this ASX ETF's portfolio, the company needs to rank well on three factors: a high return on equity (ROE), strong earnings stability, and low financial leverage.
Making strong profits on retained shareholder money within the business, not seeing profit going backwards, and having very healthy balance sheets, is a very powerful combination in my mind. Having one or two of those elements is pleasing, but having all three is a winning formula for a business.
On average, I'd expect the best businesses in the world with these financial characteristics to deliver pleasing returns in the coming years.
The QUAL ETF has already delivered strong returns – it has returned an average of 15.5% per annum over the past decade. Past performance is not a guarantee of future performance, of course, but I think it can continue to deliver pleasing results.
Good diversification
This fund is not just focused on US tech companies to deliver these strong returns. The fund owns 300 names from across the world. For starters, I think having 300 positions reduces the risk of any one position detracting from overall returns.
There are a number of countries that have a weighting of more than 0.5% in the portfolio, including the US (77.5%), Switzerland (4.7%), the UK (4.4%), Japan (3.1%), the Netherlands (2.2%), Denmark (1.9%), France (1.5%), Sweden (0.8%), Ireland (0.7%), Canada (0.6%), and Germany (0.6%).
If Europe or Japan were to become the home of more of the world's greatest businesses (such as new businesses rising), then this ASX ETF would have the geographic flexibility to invest in those businesses.
There are currently six sectors with a double-digit weighting in the portfolio – IT (28.4%), healthcare (17.6%), communication services (13.1%), industrials (12.4%), financials (10.7%), and consumer staples (10%).
No matter which market the business is located in, the QUAL ETF can provide appealing access to these great businesses across the world.
Reasonable fees
As you can tell, a lot of research goes into the selection of the stocks in this portfolio, so it's not going to be the lowest-fee ASX ETF out there. But I think the cost is reasonable and doesn't detract too much from the overall returns.
According to VanEck – the provider of the fund – it has an annual management fee of 0.40%.
