I think there are some wonderful exchange-traded fund (ETF) opportunities in 2022. In my opinion, these two ETFs could be two of the best in 2022.
The stock market has had a strong run since the bottom of COVID. But I believe investors will benefit from being more selective about the shares they get exposure to. Falling interest rates helped nearly every business valuation, but it’s a different scenario with interest rate rises seemingly around the corner.
That’s why I like these two ETF options:
VanEck Morningstar Wide Moat ETF (ASX: MOAT)
This ETF is all about finding investments that have wide economic moats. It’s an analogy – if competitors are trying to attack your company’s castle, how big of a competitive advantage (or economic moat) does that company have?
Analysts picking businesses for this ETF’s portfolio only consider companies that have strong economic moats. Ones that have a strong likelihood of remaining competitively advantaged for at least a decade.
Then, after coming up with that shortlist, those businesses only make it into the portfolio if they are at a good price compared to what Morningstar thinks is a ‘fair’ price.
The annual fee is cheap in my opinion, at just 0.49% per year. Investors are getting active management (with its positives (and negatives)) for a reasonable fee.
At the moment, some of the businesses that are among the biggest holdings include Blackbaud, Cheniere Energy, Aspen Technology, Constellation brands, Microsoft and Berkshire Hathaway.
The strategy has been successful. Over the last five years it has returned an average of 18.4% per year, slightly beating the S&P 500. But past performance is not a guarantee of future performance.
WCM Quality Global Growth Fund (ASX: WCMQ)
This ETF is managed by the investment team at WCM, an outfit based in California.
WCM’s investment process is centred around the belief that corporate culture is the biggest influence on a company’s ability to grow its competitive advantage or moat. The culture has a large influence on the day to day and long-term performance (and focus) of a business.
This ETF is also looking for businesses that have growing moats. The ‘direction’ of the moat is a key feature it wants to see. If a business isn’t progressing then competitors are likely catching up. Think about what happened to businesses like Kodak and Blackberry.
Some of the companies that currently fit the bill includes: Shopify, Sherwin Williams, Stryker Corporation and Thermo Fisher Scientific. One of the latest additions to the portfolio has been Floor and Decor.
Since inception in August 2018, the WCM Quality Global Growth Fund’s net returns has been an average of 21% per annum after fees. I think that’s a very solid return. But past performance is not a guarantee of future performance.
If you’re looking to learn how to do your own ASX company valuations, take our free share valuation course, which takes you through 6 common share valuation techniques, step by step.
Or try our Beginner Shares Course if you’re just starting out. Both are free.
