There is a lot of uncertainty around in July, so I think it’d be a good idea to focus on certain high-quality ASX ETFs that could outperform over the long-term.
Every business goes through a certain level of volatility, but the higher-quality names may be able to outperform the broader share market, particularly if tariffs cause longer-term difficulties.
How do we get specific exposure to just the highest-quality companies? There are at least two ASX ETFs I’d consider.
VanEck MSCI International Quality ETF (ASX: QUAL)
This exchange-traded fund (ETF) invests in a diversified portfolio of 300 of the highest-quality international companies listed in developed markets around the world.
These companies come from a variety of countries including the US, Switzerland, the UK, Japan, the Netherlands, Denmark and France, so there is significant geographic diversification with the portfolio.
Some of the businesses that are in the portfolio include Nvidia, Meta Platforms, Microsoft, Apple, Visa, Alphabet, Eli Lilly, Netflix, Alphabet and Costco.
All of the holdings in the portfolio have a high return on equity (ROE), earnings stability and low financial leverage, which is what they’re ranked on. The best are the ones that enter the portfolio.
With those financial characteristics put together, they’re great businesses. I’m not surprised the QUAL ETF has returned an average of 14.7% per year in the past decade. Time will tell what the next decade is like.
Betashares Global Quality Leaders ETF (ASX: QLTY)
On paper, this ASX ETF may seem fairly similar to the QUAL ETF. But, it has a somewhat different portfolio.
The QLTY ETF is invested in 150 global companies, ranked by the highest-quality score. These businesses also come from a variety of countries, including the US, Japan, Switzerland, France, the Netherlands, Hong Kong and Spain.
For a business to be selected for the portfolio, they must score well on four key factors – return on equity, debt to capital, cashflow generation ability and earnings stability.
This has led to the ASX ETF being invested in businesses like Applied Materials, Lam Research, Netflix, Cisco Systems, Honeywell and Intuitve Surgical.
For me, it’s not a surprise the QLTY ETF has returned an average of 13.5% per year over the last five years. Again, we’ll have to see how it performs in the coming years, but I think it has the potential to do very well.
