The ASX exchange-traded fund (ETF) VanEck MSCI International Quality ETF (ASX: QUAL) is a fund I love, and it's one that I own in my portfolio.
There are a number of ASX ETFs out there, and they all have their positives (and negatives).
When I'm looking for a great ASX ETF, there are a few factors that I'm looking for. First, I want to see that the holdings are quality businesses, so they can make good levels of profit. Second, I'd want a satisfactory level of diversification – I don't want all my eggs in one basket. Third, I want to see good returns – that's mostly what good investing is about.
I think the QUAL ETF ticks all of the boxes. Let's get into why.
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Quality businesses
This ASX ETF looks across the world for the highest-quality companies. It only owns businesses that score well across three fundamentals.
The businesses in the portfolio must have a high return on equity (ROE). In other words, they make a high level of profit compared to how much shareholder money is retained within the business. Shareholders are getting a great return for leaving their money in these companies, rather than taking it out as a big withdrawal.
Second, the companies need to have earnings stability. The ETF will ignore businesses that see profit bounce around. Ongoing profit growth is good for fairly consistent (long-term) share price growth, and it may make the companies more resilient in an economic downturn.
Finally, the companies inside the QUAL ETF should have low financial leverage. Low (or no) debt is a healthy sign that the companies are more economically sustainable than their indebted peers.
Some of the biggest positions in the portfolio include Meta Platforms, Microsoft, Apple, Nvidia, and Alphabet.
Diversification
The QUAL ETF is invested in approximately 300 companies, which I think is a very good level of diversification. Owning too many businesses (thousands) may reduce the level of return – it's unlikely the company ranked 2500th for quality will perform as well as the 300th over the long term.
I also think diversification is useful for lowering the risks of something going wrong for the ASX ETF in a particular sector or country.
Its holdings are spread across numerous countries, including the US, Switzerland, the UK, Japan, the Netherlands, Denmark, France, Germany, Canada, Sweden, Ireland, and Italy.
The holdings are also spread across several sectors, with the most compelling industries (in my view) having the largest allocations. Six sectors have a double-digit weighting, including IT (27.8%), healthcare (17.4%), industrials (12.9%), communication services (12.8%), financials (10.9%), and consumer staples (10.5%).
Good returns
This ASX ETF has performed well, and I'd say that's because of how it has been constructed.
Good returns are what we want to see from an investment. Impressively, the QUAL ETF returned an average of 14.6% per year over the five years to 30 April 2025. But it's not guaranteed to continue doing that well.
I don't know what the next five years will look like, but I'm hopeful this ASX ETF can continue producing positive results. I like its quality portfolio, which is why it's my largest ETF holding.
