Factor investing involves the identification of certain characteristics in shares that have historically led to positive outcomes for investors. Once the desired characteristic is picked shares are screened to find individual companies that have those attributes.

Popular factors include quality, momentum, value and size. Investors can buy individual shares that meet these characteristics or rely on an ETF or fund that follows a particular strategy.

Why quality?

There are numerous pieces of academic research that show the quality factor is attractive. Much of this research is fairly recent but is underpinned by Warren Buffett’s goal of identifying great companies that could be held over the long-term.

Factor investing and the inclusion of quality as a factor began with academic research by Nobel laureates Eugene Fama and Kenneth French who expanded their famous three factor model in 2014 to include quality in their list of factors that contribute to long-term outperformance.

SPDR MSCI World Quality Mix ETF (ASX: QMIX)

SPDR MSCI World Quality Mix earns a Silver Medalist Rating and continues to be a solid choice for its uncomplicated and diversified factor-based methodology at a highly competitive annual fee of 0.18%.

The academically verified approach to portfolio construction combines three factors—quality, value, and low volatility—to drive returns. The tracking index comprises three separate sleeves, with each pursuing exposure to a distinct risk factor. The value sleeve is steered toward stocks with lower prices relative to a set of fundamental metrics. The quality sleeve holds stocks with a combination of high return on equity, low debt, and stable earnings. Finally, the minimum-volatility sleeve optimizes for the least-volatile portfolio, given a set of constraints. Each factor has its own independent investment merit.

Research has shown that certain factors—value and quality in this case—are typically at odds with one another. Their combination results in diversification benefits and reduces the volatility of the portfolio. The inclusion of the low-volatility factor has assisted the fund in generating marketlike returns with appreciably lower risk. The combination of all three sleeves produces a defensive portfolio that keeps risk in check. However, it also gives rise to the dilution of individual factor exposures.

The strategy should outperform during market drawdowns but fall behind during strong rallies. So far, it has lived up to that expectation, protecting capital better than large-blend category peers during market drawdowns, such as in 2022, and the macroeconomic ructions of the year to February 2026. State Street’s global scale and execution capabilities underpin the strategy. Centralized research and trading, paired with locally based portfolio management, support low trading costs and tight tracking for Australia-domiciled passive products.

SPDR MSCI World Quality Mix is an excellent investment proposition, backed by skilled execution and a cleverly diversified multifactor approach.

Vaneck MSCI International Quality ETF (ASX: QUAL)

VanEck MSCI International Quality earns a Bronze Medalist Rating and is a solid investment proposition, offering relatively low-cost exposure to high-quality global equities through hedged (ASX ticker: QHAL) and unhedged vehicles.

The strategy fully replicates the portfolio of the MSCI World ex Australia Quality Index, which identifies high-quality stocks as those exhibiting attractive return on equity, stable earnings growth, and low financial leverage. This approach yields a portfolio that has notable differences from the parent index in two broad areas: a tilt toward more large-cap, growth names and skewness in sectors and geographic exposure. Sectors like technology and healthcare are overexposed, while financials are underexposed as their leveraged balance sheets often do not qualify for the strategy.

Significant US exposure does not constitute a pressing risk, given that many of its holdings are generally mega-cap multinationals generating a healthy proportion of revenue outside of the US. Quality stocks typically command higher price multiples than the rest of the market. This nudges the fund closer to the growth side of the Morningstar Style Box relative to some large-blend Morningstar Category peers.

While the largest and usually most expensive holdings guide returns, their lofty valuations are likely deserved. The fund’s top holdings are littered with industry leaders with appealing growth prospects like Apple, Microsoft, Eli Lilly, and Nvidia. It’s a similar story for the rest of the portfolio, too. The largest 10 stocks boast a wide Morningstar Economic Moat Rating, and more than three-fourths of the entire portfolio earns the same high mark.

Both share classes have a strong since-inception track record to February 2026, though factor performance is cyclical and may entail bouts of short- to medium term underperformance. VanEck MSCI International Quality is a worthwhile option for investors aiming to gain international equity exposure with a quality bias.