VanEck MSCI International Quality ETF (ASX: QUAL) is one of two ASX-listed exchange-traded funds (ETFs) in my portfolio. I thought it was a good investment before the tariff volatility ignited, and I think it makes even more sense now.
The QUAL ETF aims to hold 300 high-quality companies from across the world in its portfolio. Like many other investments on the ASX (and globally), it has suffered a decline as investors feel less confident because of US President Trump's implementation of tariffs on some specific countries and goods while threatening more.
But, amid the indiscriminate selling, I believe this ASX ETF looks increasingly appealing in this environment for a couple of key reasons.
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Stable earnings
There are three key factors for a stock to be chosen for this portfolio. Generating a high return on equity (ROE) – making a lot of profit for how much shareholder money is retained within the business – is one characteristic. That's an attractive feature for any business to have.
An even more important fundamental for this time period with this ASX ETF is that businesses need to have earnings stability.
Tariffs, inflation, elevated interest rates, and a high cost of living may make it challenging for some export and cyclical businesses to maintain profitability during times like this.
Businesses that aren't seeing their profits go down are probably seeing their earnings increase. Growing profit may help lessen any possible longer-term share price declines during the trade wars and help encourage investors to pay more for that stock over time, helping the returns of the QUAL ETF.
Low financial leverage
The other characteristic that I like about the VanEck MSCI International Quality ETF is that businesses in the portfolio need to have low levels of debt on their balance sheet for the size of that business.
In this era of higher interest rates, having a high level of debt means financing costs have significantly increased, weighing on net profit generation. But the businesses with a big cash position (and little debt) though, should mean they can generate useful interest income, boosting their net profit.
Businesses struggling with debt could be takeover targets because they're in a weak position. In contrast, businesses with strong balance sheets could be the ones actioning takeovers and strengthening their market position.
The QUAL ETF is full of advantaged businesses, and I believe the ASX ETF has an appealing long-term future, regardless of what happens in the short term. It looks better value after the single-digit fall in recent weeks.
