The VanEck MSCI International Quality ETF (ASX: QUAL) could be one of the leading exchange-traded funds (ETFs) on the ASX for a long-term buy because of a number of attributes.
I’m a firm believer that Australians should own some investments that provide international diversification because Australia makes up only a small part of the global economy. By extension, the ASX is only a small part of the global share market.
In my mind, the easiest way to invest in the global share market is to buy an ETF on the ASX that is invested in global shares. That said, I’d prefer to only invest in businesses that are rated high-quality. The QUAL ETF ticks my boxes for a number of reasons.
Diversification
The ASX ETF is invested in a total of 300 businesses outside Australia. As such, its portfolio offers ample diversification in terms of how many holdings it has. Even at 100 holdings, it would be enough to provide investors with good diversification.
These businesses come from many countries. As at June 2023, the US made up the largest allocation with a weighting of around 75%, with a number of other countries having weightings of more than 1% These are Switzerland (6.2%), Japan (3.7%), the UK (2.9%), the Netherlands (2.8%), Denmark (2.8%), Ireland (1.7%), Canada (1.5%), and France (1.3%).
With the investment characteristics this ETF looks for, there are only three sectors that have a double-digit weighting. IT had a 32.4% weighting, healthcare had a 20.2% weighting, and industrials had a 12.9% weighting.
Quality attributes
As I’ve mentioned, this ASX ETF looks to invest in quality businesses. In fact, it aims to invest in the “world’s highest-quality companies”.
To be included in the portfolio, there are three fundamentals the QUAL ETF demands: a high return on equity (ROE), earnings stability, and low financial leverage.
What this means is that the businesses generate good profit for how much shareholder money is retained in the business. They also don’t suffer from significant profit declines and they have good balance sheets with low levels of debt.
Some of the biggest positions in the portfolio include Nvidia, Apple, Microsoft, Meta Platforms, Visa, and Alphabet.
Returns
Past performance is not a guarantee of future returns. Having said that, the QUAL ETF has performed very well for investors and I think its investment style can deliver continuing growth.
Over the past five years, the EFT has gone up by an average of 14.7% per annum.
No one can say what’s going to happen next with share prices but over the long term, I believe this ETF will be able to achieve pleasing numbers because of the quality of the underlying businesses.
