How a quality tilt helped soften a tough ASX reporting season

August’s corporate reporting season came at a crucial period for the ASX 200, given it had recently risen to a 20x forward price-to-earnings ratio (P/E) for only the third time in the past 25 years¹. The price-to-earnings (P/E) ratio is a company’s current share price divided by its earnings per share (EPS). It is a common metric for determining whether a stock is overvalued or undervalued.

At the index level, company earnings growth was negative for the second year in a row, falling 1.7% and 11.1% respectively from the 2024 and 2023 financial years².

Earnings also came in 1.1% lower than analysts expected at the start of the reporting season, and 17% below the peak of analyst expectations in June 2023, highlighting the extent of weakness over the past two years³.

Sector performance was mixed with poor Materials sector earnings weighing heavily on the broader market and the very strong IT and Communication Services results having little impact, given these sector’s relative weights in the index⁴.

Source: FactSet data. As at 1 September 2025.

Just over half of the ASX 200 companies that report full-year earnings in August recorded growth from the year prior⁵. Market headlines focused on how sharply share prices moved in response to individual earnings – with a record 46% of stocks moving +/- 5% on earnings⁶. There were particularly sizeable moves in large market cap stocks (being those with a market capitalisation of more than $10 billion) with significant report day price declines in names such as CSL, Woolworths, James Hardie, AGL and Amcor.

Against this backdrop, many of the 40 companies in the Betashares Australian Quality ETF (ASX: AQLT) portfolio reported strong earnings.

AQLT holds the largest companies, by market capitalisation, listed on the ASX but instead of weighting them by size, reweights them by quality metrics. Namely, these are high return on equity (strong profits relative to shareholder investment), earnings stability (consistent and predictable profits over time), and low levels of leverage (minimal use of debt, reducing financial risk).

This translates to higher exposure to names like Telstra and Macquarie and lower exposure to BHP and CBA, alongside quality-tilted names from the mid and small caps (mid being those securities with a market capitalisation between $2 and $10 billion, and small between $250 million to $2 billion), including Pro Medicus, HUB24 and Breville.

Quality-tilted companies reported strong earnings

28 of AQLT’s 40 portfolio holdings reported full-year results this period, with average profit growth of 14.5% – significantly higher than the ASX 200’s 1.7% decline⁷.

Of the companies that reported, only four reported negative year-over-year earnings growth with eleven companies reporting growth of 20% or more. By comparison, nearly half of the ASX 200 companies not held in AQLT reported negative earnings growth.

The outlier in AQLT’s portfolio was construction and mining contractor NRW Holdings (ASX: NWH), which saw net income fall 74% due to margin pressures⁸.

Getting the big decisions right

Promisingly, AQLT avoided holding many of the large cap stocks that suffered large share price falls on reporting days including screening out Woolworths, James Hardie, AGL and Amcor. However, as AQLT maintains exposure to the ten companies that make up the top 50% of the ASX 200’s market capitalisation, it does hold CSL.

AQLT reweights these large cap companies by their quality attributes rather than their size. Many of the stocks included in the AQLT portfolio – ranging from well-established companies to lesser-known mid-caps – have helped it outperform the broader market since its inception in April 2022.

AQLT’s largest underweight position, CBA, has historically led to underperformance for the fund. However, despite an earnings report featuring record profits and the company’s largest full year dividend ever, CBA is trading down for the financial year.

3 individual company highlights

During August, AQLT’s portfolio had 31 positive contributors and nine negative contributors. Just three stocks pulled performance down by more than 0.2%, while 16 boosted performance by at least that much.

Turning to individual highlights from reporting season, several portfolio holdings delivered particularly noteworthy results, underscoring AQLT’s quality-driven approach.

Neuren Pharmaceuticals (ASX: NEU) was one of the worst performing stocks on the ASX last financial year. This time, its August half year report was a standout (Neuren follows a calendar year financial reporting cycle). Neuren delivered record profit, increasing 88% YoY, driven by surging royalties for its signature drug, Daybue, with US sales almost doubling and further global expansion⁹.

Ramelius Resources (ASX: RMS) was a strong performer within the struggling Materials sector. Ramelius, a gold mining and production company, saw profits surge 119% YoY driven by both higher output and stronger gold prices. With robust free cash flow and strong cash and bullion positions, we believe Ramelius is well-positioned to continue benefiting from gold’s recent highs¹⁰.

Finally, Monadelphous Group (ASX: MND), reported a 34.6% year-over-year rise in net profits in August 2025. Monadelphous, a leading engineering group to the resource, energy and infrastructure sectors, recorded record maintenance revenues alongside strong construction and engineering results highlighting the breadth of their income stream. The group also secured $2.5 billion of new contracts and lifted dividends by 24% underpinned by a strong cash position¹¹.

A core allocation to quality companies can make a difference

In what was a volatile period for Australian equities and a tricky market for stock pickers, AQLT’s basket of high-quality companies, on average, reported strong earnings growth.

AQLT is intended to serve as a core component of an investor portfolio – balancing an allocation to Australia’s largest companies, re-weighted by their quality attributes, with a mix of some of Australia’s highest quality mid-caps. AQLT’s approach may help investors find higher earnings growth from the Australian market that, at the ASX 200 level, has suffered due to slower growth in large cap companies.

Since its inception on 4 April 2022, AQLT has delivered 14.49% in returns to its investors and has outperformed the ASX 200 by 5.07% p.a. over the same period.¹²