A smarter approach to quality on the ASX

In our view, traditional quality investing has struggled in Australia for two reasons:

• the Australian market’s concentration means quality strategies often fail to produce defensive outcomes;
• and single-factor investing has not delivered consistent outcomes across market cycles.

As the pioneers of smart beta in Australia, we have been analysing and assessing the quality factor in Australian equities since we launched our MSCI International Quality Equities ETF (QUAL) on ASX in 2014.

QUAL has become the largest smart beta ETF on ASX, and we were determined to provide an Australian quality strategy that would provide investors with outcomes a quality investor would intend. That is risk-adjusted long-term outperformance, lower beta (which is a measure of risk), losing less in drawdowns and relative outperformance to the broader market during periods of market stress, and when inflation and growth are low.

We believe AQTY, which is the product of years of testing, scrutiny and analysis, represents a reengineering of quality investing for Australians. By combining several complementary factors, the strategy aims to produce a more defensive quality exposure and a more balanced performance across market cycles.

We have also released a paper The Narrow Market, Untangled which explains the theory behind AQTY’s philosophy. You can access that here.

Sticking to one strategy rarely works

Investing in the S&P/ASX 200 through a passive fund is routinely presented as the low-cost default for gaining access to the Australian share market. But these standard exposures force investors to accept many limitations – namely, heavy single-stock and sector concentration and a finite investable universe.

Indeed, the structure of the Australian share market is such that any single-factor strategy is likely to fail either in portfolio composition or outcome terms.

Investors would expect limited crossover of companies utilising different factors; the reality is, in Australia, cross-over between factor exposures is high.

Traditional quality approaches in Australia can produce unstable and cyclical sector exposures, often leading to outcomes that are surprisingly non-defensive.

In practice, many single-factor strategies in Australia end up owning remarkably similar portfolios – concentrated in the same sectors and many of the same stocks.

That’s why we believe quality investing requires a different approach: one where investing through a single factor is passed over in favour of a strategy that uses quality as an anchor but also considers other supporting approaches.

Our differentiated approach to quality

AQTY aims to track the MSCI Australia IMI Quality Plus Index (AQTY Index) which uses a quality-led composite approach incorporating company fundamentals, valuation and share price stability. A momentum overlay is also applied to more effectively harvest the quality factor, tilting toward companies in which market pricing and fundamental strength are aligned.

The portfolio holds 50 stocks and rebalances quarterly. Many of the companies will be familiar to investors, but with conviction expressed through materially different weights. 

Building on our legacy of innovation

For over a decade, VanEck has pioneered smart beta investing in Australia, including launching many first-of-their-kind ETF strategies on the ASX.

Before AQTY’s launch, we assessed AQTY Index’s quality composite approach against the S&P/ASX 200 using a modelled portfolio, noting that past performance is not indicative of future performance and that AQTY’s performance will not match the AQTY Index.

Historically, AQTY’s index has outperformed the S&P/ASX 200 Index across one-, three-, five-, ten- and fifteen-year periods.

Table 1: Long term simulated returns of AQTY Index vs S&P/ASX 200 

Source: VanEck, Morningstar. As at 31 May 2026. AQTY Index performance against S&P/ASX 200. Performance shown is of the index, not of AQTY. Data prior to the live index launch date is simulated. Past performance is not indicative of future performance of the index or of AQTY.

While the observation is based on simulated, as well as live data, and does not guarantee future outcomes, it suggests AQTY’s quality plus approach has historically demonstrated resilience across different market environments and cycles. Like any differentiated strategy, periods of benchmark-relative underperformance may occur, though in our view Australia’s increasingly concentrated equity market demands a more thoughtful approach to portfolio construction than traditional market-cap weighting alone.

This analysis is included in the white paper, The Narrow Market, Untangled: Building a stronger core in a concentrated market.

Key points:

• Quality, outcome engineered: In Australia, quality is often assumed through banks and large defensives. This portfolio is built for the realities of a narrow, cyclical market and deliberately engineered to reduce concentration bias and moderate sector tilts, so the outcome reflects portfolio construction, not index bias.
• Defensive when it matters, not just in theory: Quality is often advocated as a defensive exposure. But in Australia it can still fall alongside the market. By incorporating price stability and valuation discipline the portfolio is designed to cushion the downside when markets weaken, without giving up the upside when they recover.
• A more balanced source of performance: Returns are driven by multiple complementary signals that blend quality with valuation and stability rather than relying on a single factor regime. This reduces dependence on any environment and aims to deliver more consistent risk-adjusted outcomes through cycles.

To read the AQTY paper, click here.

To watch the webinar replay, click here. 

Key risks:

An investment in the ETF carries risks associated with: financial markets generally, individual company management, industry sectors, fund operations and tracking an index. See the VanEck MSCI Australian Quality Plus ETF PDS and TMD for more details once available.

AQTY is likely to be appropriate for a consumer who is seeking capital growth and a regular income distribution, is intending to use the product as a minor or satellite allocation within a portfolio, has an investment timeframe of at least 5 years, and has a high risk/return profile.