Leading ASX exchange-traded funds (ETFs) could be the best way to invest in this period of uncertainty. I believe high-quality stocks are more likely to deliver satisfactory returns.
The two ASX ETFs I’m going to highlight have among the highest quality portfolios due to how they choose their holdings.
Over the long-term, I think the two funds below are extremely attractive.
VanEck Morningstar Wide Moat ETF (ASX: MOAT)
This ASX ETF aims to give investors exposure to a portfolio of high-quality US companies, which is where many of the leading global companies are listed.
The MOAT ETF uses a two-step process to ensure it maintains a high-quality portfolio that can perform over the long term.
Firstly, the fund wants to invest in businesses that have wide economic moats (competitive advantages). To achieve a wide economic rating, Morningstar analysts need to think that the company’s economic moat will almost certainly endure for the next decade and more likely than not for the next two decades.
In other words, these are some of the best, long-term companies that we can find in the US.
Competitive advantages can come in a variety of forms, such as cost advantages, intangible assets (patents, brands, regulatory licenses), switching costs, network effect, and efficient scale.
The second factor that the MOAT ETF looks for is a compelling valuation. Target companies must be trading at attractive prices relative to Morningstar’s estimate of fair value.
Over the long term, this ASX ETF has performed strongly for investors. Over the past 10 years, the MOAT ETF has returned an average of 14.3% per year. Past performance is not a guarantee of future performance, of course.
Betashares Global Quality Leaders ETF (ASX: QLTY)
The other fund I want to highlight is the QLTY ETF, which uses multiple factors to decide which are the highest-quality stocks in the world and invests in the top ones.
The four factors that go into choosing stocks for the portfolio include a high return on equity (ROE), low debt levels, earnings stability, and cash flow generation.
A high ROE says that the business earns a high level of profit for how much shareholder money is retained within the business. It may also suggest the business can generate strong returns on future additional retained earnings.
Having low levels of debt is likely a great sign of business health and helps it weather economic uncertainty.
Earnings stability helps protect the business during downturns (and perhaps it means less volatility for the share price, too). Plus, if earnings don’t fall, then that likely means profit is rising, which can help power shareholder returns.
Finally, cash flow is the best sign that a company’s profit generation is turning into real money that’s flowing into the bank account.
With 150 holdings from across the world, I think the ASX ETF offers pleasing diversification with good potential returns. Since inception in November 2018, the QLTY ETF has returned an average of 13.6% per year.
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More reading
- 3 strong ASX ETFs I’d buy to try and beat the market
- Why these ASX ETFs are on my watchlist
- Here are 3 top Betashares ETFs I’d buy now
- 3 strong ASX ETFs for smart investors to buy and hold
- 2 amazing ASX ETFs I’d buy and hold for the next decade
Motley Fool contributor Tristan Harrison has positions in VanEck Morningstar Wide Moat ETF. 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.
