Exchange-traded funds (ETFs) might be a very effective way to invest in the coming years.
Diversification and ease of investment are two very useful reasons why ETFs can be exciting long-term ideas.
I’m not a huge fan of ASX index ETFs because of how there isn’t a large amount of capital growth potential with the largest holdings of banks and resources.
But I do really like the idea of these two:
BetaShares Global Sustainability Leaders ETF (ASX: ETHI)
This is an ETF that has a portfolio of 200 global businesses. But it’s not just any global businesses.
It excludes businesses from various sectors that don’t count as sustainable or ethical
such as fossil fuels, gambling, alcohol, junk foods and so on. Businesses also have to be in the top one third of performers when it comes to carbon efficiency for their industry, or are engaged in activities that can help reduce carbon use by other industries.
After starting with the global large cap space and making various exclusions, what remains are the largest 200 companies by market cap.
At the last count, the positions that have a weighting of more than 2.5% include: Apple, Visa, Home Depot, Mastercard, PayPal, Adode and ASML.
This is a global portfolio, with around 70% of businesses listed in the US but plenty of other countries having representation like Japan, the Netherlands, Switzerland and the UK.
BetaShares Global Sustainability Leaders ETF has an annual management fee of 0.59%. But it’s the net returns that have more than made up for that. Since inception in January 2017, the net return per annum has been almost 23%. However, past performance is not a reliable indicator of future performance.
It’s a quality portfolio of ethical names that are performing well.
WCM Quality Global Growth Fund (ASX: WCMQ)
This is an ETF that is managed by the investment team at WCM Management, a California based asset management outfit.
WCM looks for businesses that have a rising competitive advantage (as measured by a rising return on invested capital (ROIC)) and a corporate culture that supports the expansion of this moat. WCM believes the direction of a company’s economic moat is of more importance than its absolute width or size.
The ‘direction’ of the economic moat is more important than the size. WCM strongly believes that the corporate culture is a key factor of a business’ ability to achieve a consistently growing moat.
Its portfolio is focused on three key areas: IT, healthcare and consumer discretionary. Looking at the top ten portfolio positions, its holdings include: Stryker, Shopify, West Pharmaceutical Services, Sherwin-Williams, LVMH, MercadoLibre, Thermo Fisher Scientific, First Republic Bank, Taiwan Semiconductor and Visa.
The WCM Quality Global Growth Fund has performed well. Over the last two years its net returns have been an average of 21.3% per annum, outperforming the global share market by an average of 5.3% per annum.
