There are some ASX exchange-traded funds (ETFs) that look to me like they’re designed for strong long-term performance. I’m very positive on the below two.
VanEck MSCI International Quality ETF (ASX: QUAL)
This ASX ETF looks to own 300 of the highest-quality businesses in the world. While they’re not guaranteed to deliver strong shareholder returns every single year, I think they can deliver stronger-than-average returns over the long-term.
There are three characteristics that a business must possess to be included in this portfolio. They should have earnings stability, a high return on equity (ROE) and low levels of debt for their size. When you combine those factors, you’re left with very high quality businesses that are likely to have pleasing advantages compared to nearly any other business.
Within the portfolio, the biggest holdings are Nvidia, Meta Platforms, Apple, Microsoft, Alphabet and Visa.
I’m not surprised the QUAL ETF has delivered an average return per year of 15.7% over the last five years, though I’m not expecting the next five to be as good.
Betashares Global Quality Leaders ETF (ASX: QLTY)
In many ways, the QLTY ETF is similar to the QUAL ETF, but there are a few differences.
Firstly, this ASX ETF only invests in 150 businesses, though the holdings are more evenly weighted than the first fund I wrote about.
Second, this fund looks at an additional element, not just earnings stability, a high ROE and a healthy balance sheet in debt terms. It also needs to see good cash generation ability from the companies it’s invested in.
This has led to its portfolio being full of names like Arista Networks, Alphabet, Amphenol, Johnson & Johnson, Lam Research and Meta Platforms.
The ASX ETF has delivered an average of 13.3% over the last five years, and it’s less reliant on a few large tech giants from the US.
I think its diversification and the combination of factors in this fund means it can continue to perform.
