Quality is not an act, it is a habit


Picking the right stocks when investing internationally is no simple feat because there are a number of additional risks including geo-political issues, currency and other idiosyncrasies not typically found in Australian equities.  Navigating these risks among many thousands of securities demands skill and discipline.

The notion of quality investing is deeply embedded in Benjamin Graham’s ‘intelligent investment’ philosophy, one which his disciple Warren Buffett has made into a perpetual habit. Using the quality principles advocated by Graham and Buffett when investing internationally, can add significant outperformance over the long term via a single trade on ASX.

Aristotle was an Ancient Greek philosopher.  Philosophy is the set of guiding principles that inform and shape an individual’s decision making process. 

In finance the investment philosophy of the likes of Buffett, Munger and Graham are well known as their philosophies have become habit of portfolio managers around the world.

In ‘The Intelligent Investor’ Graham said investors should demand from a company “a sufficiently strong financial position and the potential that its earnings will at least be maintained over the years.”  This philosophy underlies VanEck Vectors MSCI World ex Australia Quality ETF (QUAL).

QUAL: 300 quality international securities with one simple trade

QUAL tracks the MSCI World ex Australia Quality Index (QUAL Index) which includes only the highest quality scoring stocks based on three easily identifiable financial characteristics:

  1. High ROE;

  2. Stable year-on-year earnings growth; and

  3. Low leverage.

These echo the characteristics Graham insisted investors should demand from companies. Graham defined a strong financial position as one where long term debt does not exceed current net assets and there is a high ROE. Graham argued that the best way to determine whether earnings will be maintained is to examine the earnings of the company over its past ten years.

QUAL is a simple and cost effective strategy that has continued to outperform across market cycles.

QUAL has outperformed across all periods

QUAL performance graph October 2017

And the result is more pronounced over the long term

The following chart shows the outperformance of the QUAL Index relative to the MSCI World ex Australia Index.

QUAL performance Graph October 2017 2

IMPORTANT NOTICE: This information is issued by VanEck Investments Limited ABN 22 146 596 116 AFSL 416755 (‘VanEck’) as responsible entity and issuer of the VanEck Vectors MSCI World ex Australia Quality ETF (‘Fund’). This is general information only and not financial advice. It does not take into account any person’s individual objectives, financial situation or needs. Before making an investment decision in relation to the Fund, you should read the PDS and with the assistance of a financial adviser consider if it is appropriate for your circumstances. The PDS is available at www.vaneck.com.au or by calling 1300 68 38 37. The Fund is subject to investment risk, including possible loss of capital invested. Past performance is not a reliable indicator of future performance. No member of the VanEck group of companies gives any guarantee or assurance as to the repayment of capital, the payment of income, the performance, or any particular rate of return from the Fund.

QUAL invests in international markets. An investment in QUAL has specific and heightened risks that are in addition to the typical risks associated with investing in the Australian market. These include currency risks from foreign exchange fluctuations, ASX trading time differences and changes in foreign laws and regulations including taxation.

QUAL is indexed to a MSCI index. QUAL is not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to QUAL or the MSCI Index. The PDS contains a more detailed description of the limited relationship MSCI has with VanEck and QUAL.

Published: 09 August 2018