The ASX-listed exchange-traded fund (ETF) VanEck MSCI International Quality ETF (ASX: QUAL) is a top-quality investment for investors who are searching for long-term returns.
Plenty of Australians may be lacking exposure to the global share market. That's a shame because there are a lot of great businesses out there listed beyond the ASX.
We don't necessarily need to leave the ASX to make investments in those great businesses – ASX ETFs can give us that exposure.
However, we don't necessarily need to own all (or most) of the international businesses. I'd rather just invest in the best ones.
The QUAL ETF has a very effective investment strategy to do that selective investing, which attracted me to it.
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High-quality portfolio
The best reason to like this fund is the high-quality nature of the businesses and how the portfolio is put together.
There are three things businesses must have to be considered for this portfolio.
First, they must have a high return on equity (ROE). In other words, they make a high level of profit for the amount of shareholder money retained within the business. As shareholders, we want to see those businesses making a good level of profit, considering they're keeping that money rather than paying it as a dividend to investors.
The businesses in the portfolio are generating some of the highest ROEs in the world.
Second, these businesses have a high level of earnings stability. It's pleasing when the company's profit doesn't go backwards. But that also suggests that profit is nearly always rising, which is a great tailwind for long-term share price growth.
Thirdly, the QUAL ETF businesses must have low financial leverage. A healthy balance sheet is a good thing for the company's long-term growth plans and for navigating difficult economic periods.
There are more reasons to like this ASX ETF beyond the great businesses, but the fund has delivered an average annual return of 14.5% over the past decade, thanks to the quality of its holdings.
Strong diversification
The fund owns approximately 300 companies from different sectors and countries.
There's no specific number of businesses that makes a portfolio diversified or not. I'd say 300 holdings provides ample diversification. Even 100 holdings would be more than enough, in my book.
The biggest positions in the portfolio are many of the strongest and most recognisable businesses in the world. These are names like Meta Platforms, Nvidia, Apple, Microsoft, Alphabet, ASML, Eli Lilly, and Visa.
It's important to note this is not essentially a US tech fund – less than 30% of the ASX ETF is invested in IT shares.
On top of that, the portfolio has a position of at least 0.5% in a number of countries, providing strong geographic diversification. Those places with a noticeable allocation include the US, Switzerland, the UK, Japan, the Netherlands, Germany, Canada, Denmark, Sweden, and France.
This impressive ASX ETF has an annual management fee of 0.4%, which I view as attractive given the quality of the portfolio and the work that has gone into creating the fund's global portfolio.
