Why Quality ETFs Matter When Markets Wobble

In the latest episode of Outlook Money’s Investment Made Easy webinar series held in collaboration with ICICI Prudential Asset Management Company, experts decoded the concept of Quality ETFs and how they can serve as a core strategy in an investor’s long-term portfolio.

Hosted by Outlook Money’s Versha Jain, the discussion featured Chintan Haria, Principal – Investment Strategy at ICICI Prudential AMC, and Ritu Poddar, Head – Research and Third-Party Products at Nirmal Bang.

What Are Quality ETFs?

• “Quality investing is a strategy that focuses on financially robust companies with strong balance sheets, low leverage, and consistent earnings,” explained Ritu Poddar. She likened plain vanilla ETFs to IPL teams—diverse and mixed in form—whereas Quality ETFs, like a World Cup team, are handpicked for consistency and resilience.

How Are They Different From Other Factor-Based Strategies?

“Each factor—be it value, momentum, or low volatility—follows different selection rules. Quality is distinct in its emphasis on financial health,” Poddar noted. “While momentum is driven by recent price trends, quality focuses on profitability, debt ratios, and earnings stability.”

Chintan Haria added: “Quality isn’t just a trend. It’s built on return on equity, low debt-to-equity, and predictable earnings. This makes it a core portfolio candidate, especially in volatile markets.”

Why Invest In Quality ETFs Now?

According to Haria, “Quality has underperformed in recent years compared to momentum and value. But this correction in valuation has set the stage for its comeback, especially, as economic stability returns and earnings growth normalises.”

He added, “If you have benefitted from strong returns in mid- and small-cap stocks recently, now is a good time to rebalance towards quality. These stocks provide long-term wealth-building potential without the speculative churn.”

SIP Or Timing The Market?

“While technically timing factor-based funds can be done, SIP is a more practical and effective approach,” Poddar advised. “It smoothens market fluctuations and captures different phases of the factor cycle, reducing timing risk.”

What Should Investors Look For?

Poddar laid out a handy Q-E-L-T framework for evaluating Quality ETFs:

• Quality—of underlying index (e.g., Nifty 500 or Nifty 100)

• Expense ratio—should be competitive within the category

• Liquidity and AUM—higher is better

• Tracking error—should be minimal to avoid performance drag

Final Takeaways

“Staying away from equities is not an option for long-term wealth creation,” Haria emphasised. “If your equity allocation permits, start accumulating quality ETFs, spread your investments across the next 2–3 years. This is the time to make quality a part of your core.”

Editor’s Note: This webinar is part of the Investor Awareness Initiative by ICICI Prudential AMC. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully before investing.

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Disclaimer: The information set out above is included for general information purposes only and is not exhaustive and does not constitute investment or tax advice.

Mutual Fund investments are subject to market risks, read all scheme-related documents carefully. Investors are requested to review the prospectus carefully and obtain expert professional advice with regard to specific legal, tax and financial implications of the investment/participation in the scheme