Why this high-quality ASX ETF could be my next ASX buy

I am not always looking for the cleverest or most complex investment.

More often than not, I find myself drawn to strategies that quietly stack the odds in your favour over time. That usually means focusing on quality businesses, sensible diversification, and a structure that encourages long-term thinking rather than short-term trading.

That is why the VanEck MSCI International Quality ETF (ASX: QUAL) has caught my attention.

I do not own it yet, but it is very much on my watchlist as a potential next addition.

What this ETF actually does

The VanEck MSCI International Quality ETF provides exposure to a portfolio of high-quality international companies listed in developed markets outside Australia.

The ETF tracks the MSCI World ex Australia Quality Index, which is built by selecting companies based on three fundamental characteristics: high return on equity, stable earnings, and low financial leverage. These are not fashionable metrics. But over long periods, they have tended to matter.

Instead of simply owning the biggest companies by market value, the QUAL ETF tilts the portfolio toward businesses that score well on those quality measures. The result is a portfolio of around 300 stocks spread across multiple countries and sectors.

Why quality matters to me right now

Quality investing is not about avoiding volatility altogether. It is about owning businesses that are more likely to endure it.

Companies with strong balance sheets, consistent earnings, and high returns on capital tend to have more options when conditions get tougher. They can keep investing, protect margins, and avoid dilutive capital raisings. Over time, that resilience can compound into better outcomes for investors.

I am not suggesting that quality stocks always outperform in every year. But historically, quality-focused strategies have delivered attractive long-term returns relative to broader global equity benchmarks. That is the type of edge I am comfortable backing.

Diversification without overcomplication

Another reason the VanEck MSCI International Quality ETF appeals to me is diversification.

The ETF holds companies across a wide range of geographies, including the United States, Europe, and parts of Asia. Sector exposure is also broad, with meaningful weightings to technology, healthcare, consumer staples, and industrials.

Looking at the holdings, you are effectively getting exposure to many of the world’s most established businesses, including names like Apple, Microsoft, Nvidia, Eli Lilly, Visa, and Johnson & Johnson. Importantly, no single company dominates the portfolio, with individual weights capped at 5%.

For investors who want global exposure but prefer a tilt toward balance sheet strength and earnings quality, this structure makes a lot of sense.

A useful complement to Australian portfolios

Australian portfolios are often heavily skewed toward banks, resources, and domestic cyclicals.

The QUAL ETF offers access to areas that are less represented on the ASX, particularly global technology, healthcare, and consumer brands with international scale. I see it as a potential complement rather than a replacement for Australian equities.

For example, pairing this fund with a broad Australian ETF or a handful of local stocks could create a more balanced portfolio across different economic drivers.

Risks worth acknowledging

Like any global equity ETF, the VanEck MSCI International Quality ETF is not without risk.

Returns will fluctuate with global markets, and the ETF is exposed to foreign currency movements, as it is not hedged back to the Australian dollar. That can increase volatility in the short term.

There is also the risk that a quality-focused strategy underperforms during periods when lower-quality or more speculative stocks are leading the market. That is something investors need to be comfortable with.

For me, those risks are acceptable if the investment is approached with a long-term mindset and a time horizon of at least five years.

Foolish takeaway

The VanEck MSCI International Quality ETF appeals to me because it focuses on fundamentals that have historically mattered over the long run.

It offers diversified global exposure, a clear quality tilt, and access to some of the world’s strongest businesses, all within a simple ETF structure.

The post Why this high-quality ASX ETF could be my next ASX buy appeared first on The Motley Fool Australia.

More reading

• Investing in the VanEck International Quality ETF (QUAL)? Here’s what you’re really buying
• Why I’m betting on this ASX ETF to help me become a millionaire
• 3 steps to replace your wage with dividends from ASX shares
• I plan to invest $1,000s into these 2 ASX ETFs in 2026

Motley Fool contributor Grace Alvino has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple, Microsoft, Nvidia, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Johnson & Johnson and has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Apple, Microsoft, Nvidia, and Visa. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.