![\"\"](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/01\/ed646-fig1-gmo-quality-companies.png\")
<\/a>Click to enlarge<\/p>\n
For this reason, quality stocks have historically been highly priced, at a premium to the market.<\/p>\n
That\u2019s less so today as quality stocks have trailed the market over the past year. In 2025, quality trailed global stocks by around 6%, and in developed markets, it was closer to 15%. These stocks were left behind as investors bid up more speculative stocks.<\/p>\n
Australian quality stocks have trailed too<\/p>\n
Defining quality stocks in Australia is a little fuzzier. There are three indices that track quality shares here \u2013 the Solactive Australia Quality Select Index, the S&P\/ASX Quality Index, and the MSCI Australia IMI Quality Index.<\/p>\n
In 2025, total returns from these indices differed markedly: Solactive\u2019s rose 12%, S&P\u2019s 5% and MSCI\u2019s 3% (this was price only as they don\u2019t give total returns).<\/p>\n
Why the big gaps in performance? Well, each of them filters different characteristics for quality stocks, and I\u2019m not sure any of them get it close to right.<\/p>\n
For instance, Solactive\u2019s Australian Quality Select Index has the following stocks in the top 10.<\/p>\n
Source: Solactive<\/p>\n
Perseus Mining shouldn\u2019t be in a quality index, in my view. It\u2019s a capital intensive gold miner that has a mixed track record through mining cycles.<\/p>\n
Also, the inclusion of banks like ANZ, NAB and Westpac are questionable too. They sell commodity products and have low returns on equity (ROEs). For instance, ANZ\u2019s ROE was just 8% in its most recent 12 month results, which is below its cost of capital and lags the ASX 200\u2019s ROE of close to 10%.<\/p>\n
So, Solstice\u2019s quality index defines quality very differently to what I would.<\/p>\n
The returns from quality stocks in Australia over the past 12 months are more likely nearer those of the S&P and MSCI indices. This makes sense because the ASX 200\u2019s total returns were 10% in 2025, with resources up 36%, financials higher by 12%, while industrials increased by just 4%. Most of what I would deem as quality stocks fall into that industrials category.<\/p>\n
For example, if I screen for ASX 200 stocks with ROEs above 18% in 2025, it comes up with the following list, excluding mining-related companies.<\/p>\n
Source: Morningstar<\/p>\n
Just about all these stocks would fit my definition of quality, barring Qantas (capital intensive), Orora (no competitive edge?), and perhaps James Hardie (management is doing its best to destroy a fine business).<\/p>\n
Many of these stocks significantly underperformed the ASX 200 index in 2025:<\/p>\n
REA -21%
\nGQG -16%
\nAristocrat -15%
\nPro Medicus -12%
\nTechnology One -11%
\nWoolworths -4%
\nJB Hi Fi +4%
\nThe Lottery Corporation +4%
\nResmed +5%<\/p>\n
*Price terms only<\/p>\n
Among these stocks, and other quality ones, may lie some great, even generational opportunities for investors.\u00a0From the list, REA, Resmed, Aristocrat, Woolworths, and The Lottery Corporation look most interesting.<\/p>\n
The best ways to invest in quality stocks<\/p>\n
What are the ways to get access to quality stocks? Of course, you can buy the shares directly.<\/p>\n
Many prefer to own ETFs nowadays. VanEck\u2019s MSCI International Quality ETF (ASX: QUAL) invests in quality shares outside Australia. Betashares Global Quality Leaders ETF (ASX: QLTY) invests worldwide in quality. Meanwhile, VanEck\u2019s Morningstar Wide Moat ETF (ASX: MOAT) owns quality stocks in the US.<\/p>\n
For Australia, the options are more limited. Betashares has the Australian Quality ETF (ASX: AQLT) but it\u2019s based on the aforementioned Solactive Australia Quality Select Index, which I view as having serious limitations.<\/p>\n
I think fund managers who invest in quality stocks, and have consequently underperformed of late, may be worth considering too. Aoris Investment is an Australian-based global fund managers with a great long term track record of investing in quality stocks. Airlie Funds Management focuses on Australian stocks and has smart minds running it. There\u2019s also AFIC, a listed investment company that had a terrible year yet owns a portfolio full of quality stocks, many of them mentioned above.<\/p>\n
Disclosure: VanEck is a Firstlinks sponsor, as is Airlie via Magellan Investment Partners.<\/p>\n
****<\/p>\n
Rob Almeida of MFS grabs onto a similar theme as my editorial above, suggesting that while cyclical stocks are hogging the headlines, ‘compounders’ may be on sale<\/a>, and their resilience should shine through in the long term.<\/p>\n ****<\/p>\n In my article this week, I look at Ray Dalio’s unique take on 2025<\/a> – dominated by a collapse in the value of money and a move away from US assets – and what he thinks it means for markets this year and beyond.<\/p>\n James Gruber<\/p>\n Also in this week’s edition…<\/p>\n Some industry experts suggest Division 296 may double-tax franking credits but Tony Dillon says that’s not the case, and explains why<\/a>.\u00a0<\/p>\n Auscap’s Tim Carleton says Macquarie is becoming a significant competitor to the Big 4 banks in home loans and that brings earnings risk to the majors that isn’t currently priced into the market – a stark warning for anyone who owns any of the Big 4<\/a>, which includes just about every Australian.\u00a0<\/p>\n There’s been a lot written about AI but less about what the economic consequences could be from a boom, bust, or something in between. Schroders’ David Rees breaks down the diffferent scenarios<\/a> for the US and global economies.<\/p>\n When investing in A-REITs, many people think they’re owning passive rental vehicles. But Quay Global Investors says that’s mistaken, as development and funds management companies increasingly dominate the index, resulting in greater cylicality and volatility<\/a>.<\/p>\n We care a lot about the price of milk at the supermarket, yet think little about the industry behind the products on the shelves. Harrison Stewart says dairy farming deserves greater attention<\/a> as an alternative asset class.<\/p>\n Lastly, in this week’s whitepaper, Neuberger Berman identifies five themes that will drive markets in 2026<\/a>.<\/p>\n Curated by James Gruber and Leisa Bell<\/p>\n Latest updates<\/p>\n PDF version of Firstlinks Newsletter<\/a><\/p>\n Australian ETF Review<\/a> from Bell Potter<\/p>\n ASX Listed Bond and Hybrid rate sheet<\/a> from NAB\/nabtrade<\/p>\n Listed Investment Company (LIC) Indicative NTA Report<\/a> from Bell Potter<\/p>\n