Some exchange-traded funds (ETFs) are special investment ideas in my opinion. I think ETFs that tick all of the boxes are worth thinking about.
There are a few different things that I’d want from an investment. I want pretty good diversification, quality growth businesses, good exposure to technology and a reasonable management fee.
I don’t think what I just described can be said about ASX blue chip ETFs like Vanguard Australian Shares Index ETF (ASX: VAS). Instead, I’m looking at these ideas:
Betashares Global Quality Leaders ETF (ASX: QLTY)
This ETF is about investing in some of the world’s highest quality businesses.
Holdings have to rank well on return on equity (ROE), debt to capital, cashflow generation and earnings stability. In other words, they have to be the best of the best, with good profit, cashflow and a solid balance sheet.
There are 150 holdings which are spread across the world, just over 60% of the portfolio is focused on US businesses. IT and healthcare make up more than 57% of the ETF, so it’s got good exposure to the right growth sectors.
The biggest exposures are to names like Facebook, Adobe, NVIDIA, Texas Instruments, Keyence, Accenture, Cisco Systems and Alphabet. However, all these positions are around 2%, so it’s quite evenly diversified.
On the costs side of things, it’s very reasonable for what it offers – the management cost is 0.35% per annum.
Betashares Global Quality Leaders ETF’s performance has been consistent and strong since inception in November 2018, with an average performance per annum of 18.1%.
VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT)
This ETF is somewhat similar to the BetaShares one. It’s trying to invest in quality businesses, ones with strong competitive advantages (also known as wide moats).
But there are some differences. All of the businesses in this portfolio are listed in the US, so it doesn’t have the same global diversification.
But the returns have been even stronger. Over the last five years the net return has been an average of 19.3%, which is 3.5% per annum better than the S&P 500.
The management fee is a bit more – at 0.49% per annum – but clearly those fees are worth it.
It’s a bit more active than a passive index funds because the holdings have to be trading at attractive prices to Morningstar’s estimate of fair value. That should mean it’s always invested in good value and quality shares.
What shares does it own at the moment? Wells Fargo, Intel, Alphabet, Altria, Blackbaud, General Dynamics and Boeing are some of the names in its top holdings, out of 49 positions.
Summary thoughts
Both of these ETFs are really good and have performed very well in recent years. Considering how they invest, the solid returns could continue for the foreseeable future. The MOAT ETF has performed better, which might be partly because of the active Morningstar element of it, though I do like the global holdings of the QLTY ETF.
Either way, I’d say they’re both as good as many of the leading ASX growth shares that we can choose from.
