VanEck talks Quality International Investing

Funds Management

by Jessica Amir

VanEck Australia Vice President, Business Development, Damon Gosen talks about the VanEck Vectors MSCI World ex Australia Quality ETF (ASX:QUAL) and why it is proving popular with investors looking for international exposure to stocks offering a high return on equity, stable year-on-year earnings growth and low financial leverage.

Jessica Amir:
Hello I’m Jessica Amir for the Finance News Network. Joining me from VanEck Australia is Vice-President Business Development, Damon Gosen. Hi Damon and welcome to the Network.

Damon Gosen: Hi Jessica, great to be here.

Jessica Amir: For those that don’t know, VanEck is a leading provider of Exchange Traded Products, as it’s known ETFs. But today we’re diving into one of those ETFs, it’s called the VanEck Vectors MSCI World ex Australia Quality ETF (ASX:QUAL). So just give us a quick introduction?

Damon Gosen: VanEck is one of the largest fund managers globally. We’re a US headquartered firm, we have been in business since 1955. We’ve got about $60 billion of funds under management and as you’ve noted, we are a very large ETF provider. What we focus on is beyond the usual approaches to investment management. And so a great example of that is our VanEck Vectors MSCI World ex Australia Quality ETF, or QUAL for short, or QUAL is the ASX code.

QUAL is a great way of getting exposure to international stocks, but instead of taking just blanket exposure across all of the stocks in the broad market benchmark, it identifies the highest quality companies.

Jessica Amir: We all love quality stocks. But how does VanEck define quality?

Damon Gosen: There’s a lot of academic literature on quality. And so typically things like low debt, stable earnings, several other metrics like good strong cash flow or balance sheets. They’re typically associated with quality. The QUAL ETF tracks an index at MSCI,. MSCI define quality by companies that have got high returns on equity, stable earnings and low financial leverage.

Jessica Amir: Now can you give us a little bit more detail about the ETF?

Damon Gosen: So QUAL invests in 300 high quality companies. The starting point for the index is the MSCI World ex Australia, which is close to around 1,600 securities. So each of those stocks gets a quality score, based on three quality factors. The first is looking for companies with high returns on equity. Second is earnings stability and the third is low financial leverage. So then they’re ranked in the 300 highest quality companies that become the constituents of the index. The QUAL ETF just replicates that index, it owns all 300 securities in that index and the index weights. And the performance of the index has been sensational over time.

Jessica Amir: Just on performance as you’ve alluded to, your fund has done really well. Tell us about that?

Damon Gosen: QUAL kicked off in Australia in October 2014. Since that time, it’s delivered an annualised return after fees of 15.4 per cent per annum. That’s over 3.5 years now, that’s around two per cent or just shy of two per cent per annum, outperformance.

Jessica Amir: What else can you tell investors?

Damon Gosen: For Australian investors in the QUAL ETF, one of the best things about it is the diversification it provides. In that the types of sectors that are really well represented, things like really good quality companies that are tech sector, like Apple (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT). In the healthcare sector, like Roche (VTX:ROG) and Johnson & Johnson (NYSE:JNJ). So the types of exposure that Australian investors don’t get exposure to in the Australian market, they’re picking up exposure to in this internationally diversified ETF.

The second point we would make is the management cost is very very low. 0.4 per cent per annum, which is about a third of the price of most active funds. We don’t charge any performance fees either.

Jessica Amir: Now Damon, tell us about the risk and return characteristics?

Damon Gosen: Well obviously the returns have been exceptional, since we started the fund. In the long run, the return of that quality index has been great as well. Typically what we find is in really difficult market environments, you hear of a flight to quality. So with the quality index, it tends to hold up very well in market downturns and actually recovers faster, because of the sorts of companies that are represented in the portfolio.

Jessica Amir: How has the quality index performed during difficult market periods?

Damon Gosen: During most market downturns, the quality index has outperformed by a sizeable margin. During the GFC, the outperformance was around 10 per cent, which was quite a great result for investors, during a very difficult period.

Jessica Amir: Lastly, what’s the key message that you’d like to leave with investors?

Damon Gosen: The QUAL ETF is a very low cost exposure to 300 high quality investments. For Australian investors, it’s a great diversifier in the sense that it gives exposure to high quality technology companies, and healthcare stocks that Australians just can’t own on the ASX. And finally, all we know is that in times of market volatility, astute investors typically are well served by owning companies with strong balance sheets, with diversified earning streams and very profitable businesses. And that’s exactly what the QUAL ETF provides.

Jessica Amir: Your time’s been very valuable, thank you so much.

Damon Gosen: Thanks Jessica.


Jessica Amir

Finance News Network
Jessica joined FNN in January 2017 after having worked in financial advising for seven years and in TV journalism for seven years, specialising in finance, equities and analysis. She has interviewed former Prime Ministers of Australia, Tony Abbott, Julia Gillard and Kevin Rudd and ex Treasurer Jo Hockey. Jessica has worked as a journalist with Sky News Business, ABC 1, ABC's The Business, ABC24 and has also been a regional Channel 7 and 9 TV reporter with Prime7 and Win News.