MOAT vs QUAL: Which quality ASX ETF would I buy today?

Quality investing can be a great way to build wealth over the long term.

The challenge is working out how to do it.

Investors can try to pick individual companies with strong brands, high returns, pricing power, and durable competitive advantages. But that takes time, confidence, and plenty of research.

That is why I think exchange-traded funds (ETFs) can be useful.

Two quality ASX ETFs that stand out to me are the VanEck Morningstar Wide Moat AUD ETF (ASX: MOAT) and the VanEck MSCI International Quality ETF (ASX: QUAL).

I rate both as buys. But if I had to choose only one today, there is a winner.

The case for the QUAL ETF

The QUAL ETF has been an excellent performer.

Over the past decade, it has delivered an average total return of 14.95% per annum. That is a very strong result.

The fund focuses on international companies with quality characteristics. These include strong returns on equity, stable earnings, and relatively low financial leverage.

I like that approach because it screens for businesses that have already shown financial discipline and resilience.

This can be a good way to invest globally without simply buying every large company in an index. The QUAL ETF is trying to tilt towards companies with stronger balance sheets, more consistent earnings, and higher profitability.

That makes sense to me. The global share market includes plenty of businesses I would not want to own. Some are too cyclical, too indebted, or too inconsistent. A quality screen helps narrow the field.

Overall, I think this is one of the best ASX ETFs for investors seeking exposure to world-class companies.

The case for the MOAT ETF

The VanEck Morningstar Wide Moat AUD ETF has also produced an impressive long-term result.

Over the past decade, it has delivered an average total return of 13.9% per annum. That is slightly behind the QUAL ETF, but still excellent.

The reason I like the MOAT ETF is the philosophy behind it. This ETF invests in US companies that have sustainable competitive advantages and are trading at attractive prices compared with the estimate of fair value.

In simple terms, it is trying to buy good businesses at reasonable prices.

That is very appealing to me because it has a Warren Buffett-style feel. Buffett has long focused on businesses with durable competitive advantages, or moats, and has also cared deeply about the price paid.

This MOAT ETF gives investors a simple way to apply a version of that idea through an ASX ETF.

I like that it is not just chasing the biggest companies or the most popular themes. It is trying to find companies with strong long-term economics while still paying attention to valuation.

Which would I buy?

This is a close call. The VanEck MSCI International Quality ETF has the stronger 10-year performance, and I would be very happy to own it. It is a clean, sensible way to gain exposure to global quality companies.

But if I had to choose one today, I would buy the VanEck Morningstar Wide Moat AUD ETF.

The reason is not that I think the QUAL ETF is weak. I just like the MOAT ETF’s combination of quality and valuation more at this point.

A quality company can still be a poor investment if the price is too high. The VanEck Morningstar Wide Moat AUD ETF’s process gives more weight to that idea by focusing on wide-moat businesses that look attractively priced.

That does not guarantee outperformance. No ETF can do that. But it gives the fund a discipline that I find appealing.

Foolish takeaway

I think both ETFs deserve attention from long-term investors.

The QUAL ETF has done better over the past decade, and its quality screen remains attractive. But investing is not only about looking in the rear-view mirror.

For me, the MOAT ETF edges ahead because it lines up more closely with how I like to think about investing: own strong businesses, but do not forget the price.

The post MOAT vs QUAL: Which quality ASX ETF would I buy today? appeared first on The Motley Fool Australia.

More reading

• How to become a millionaire on a $70,000 salary
• Could this ASX ETF be the easiest way to invest in global quality?
• 2 ASX ETFs I think Warren Buffett would buy
• 3 unstoppable ASX shares to buy with $3,000
• 2 ETFs that could be buys today for any ASX share portfolio

Motley Fool contributor Grace Alvino 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 recommended VanEck Morningstar Wide Moat ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.