The ASX-listed exchange-traded fund (ETF) Global X S&P World Ex Australia GARP ETF (ASX: GARP) is a favourite of mine and offers plenty of positives. As a long-term investment, I think it could be one of the best ideas.
Global X may not be as well-known as Vanguard or BetaShares in Australia, but it offers a range of ASX ETFs for Australian investors to buy.
In my view, the GARP ETF could be one of the best funds to buy for investors hunting for stronger returns. I have that view for a few different reasons.
High-quality growth
One of the most important things to know about this fund is that it uses ‘GARP’ as an investment style. The ‘G’ stands for growth.
But, this fund isn’t just seeking any business that’s growing, it’s trying to own investments that are high-quality.
Instead of leaving judgements about quality and growth to a fund manager to decide, that fund uses filters to find those names.
On the growth side of things, the ASX ETF looks at three-year sales per share growth and earnings per share (EPS) growth figures. Both sales and profit growth are important, so it’s good to see that both metrics are being considered.
Quality is considered by looking at the companies’ financial leverage (meaning debt levels) and the return on equity (ROE). It’s good to know that the company’s growth is not being artificially boosted by unsustainable debt levels. These businesses are purely generating strong profits for shareholders because they have great business models, not because they’re using lots of debt.
Reasonable price
The rest of the strategy employed by the GARP ETF is the ‘ARP’, which stands for ‘at a reasonable price’.
In other words, the businesses are generating pleasing levels of growth, but we’re not paying too much to invest in that growth.
How does the fund decide whether an investment is good value or not? It’s by looking at the earnings-to-price ratio, which is another way of considering the price/earnings (P/E) ratio.
Therefore, the ASX ETF is looking for businesses with an attractive P/E ratio relative to its growth rate, which some investors call the PEG ratio.
At the end of March, some of the largest positions in the portfolio included Nvidia, Eli Lilly, Alphabet, Meta Platforms, Berkshire Hathaway and Microsoft.
Useful diversification
While the biggest positions in the portfolio are unsurprisingly US companies, it’s important to know that this ASX ETF has a global portfolio of 250 companies across multiple countries and sectors. In other words, it can provide global diversification and it’s not too focused on one country or one sector.
For me, this can be an all-in-one investment that ticks virtually all the boxes that an Australian investor could want.
The post Is this going to be the best-performing ASX ETF for the next decade? appeared first on The Motley Fool Australia.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.