I think that there are some great exchange-traded funds (ETFs) that are worth pursuing in this volatile share market environment.
Sometimes it’s hard to know which individual businesses are worth buying, so why not just buy a whole portfolio of shares in one go and get some diversification?
I really like these two ASX ETF options for long-term growth potential:
BetaShares Global Sustainability Leaders ETF (ASX: ETHI)
This is one of my favourite ETFs because not only does it tick lots of boxes on the quality side of things, but it also offers investors peace of mind on the ESG/ethical side of things as well.
This investment represents a global portfolio of 200 names spread across a number of industries. It certainly ticks the diversification box.
Those businesses in the portfolio are picked from the global share market, but only after a number of sectors are removed (such as fossil fuel, alcohol and junk food) and they have to be in the top one-third of performers in carbon efficiency for their industry, or are engaged in activities that help reduce carbon use by other industries. Businesses that lack gender diversity on the board are also excluded.
The actual holdings are very high quality too, in my opinion. Some of the top 10 are among the strongest businesses in the world, including: Nvidia, Apple, Home Depot, Visa, Mastercard, Cisco Systems, Adobe and ASML.
Ethical options normally come with a high management cost, but I think that the ETHI ETF’s annual management fee of 0.59% is very reasonable for that ESG overlay. Investors can feel good investing in this ETF.
Betashares Global Quality Leaders ETF (ASX: QLTY)
This is another high-quality ETF that I really like, though it doesn’t have that ESG factor (though many of the holdings are largely ethical).
BetaShares offers this ETF which has a global portfolio of 150 names from a number of sectors. So again, it very nicely ticks the diversification box.
The idea behind this portfolio is that the businesses have to rank highly on four quality factors including the return on equity (ROE), debt to capital, cash flow generation and earnings stability.
In other words, the ETF owns businesses that are very profitable for the money shareholders have put into the business, it has low debt levels, its earnings are coming through in real cash flow and they are reasonably consistent.
Some of the businesses that currently pass the test include Advanced Micro Devices, Johnson & Johnson, Cisco Systems, Intel, Roche, Novo Nordisk, Pfizer, Visa, Alphabet, Accenture, Applied Materials, Microsoft, SAP, ASML and L’Oreal.
Final thoughts
Both of these ETFs are very high quality in my opinion. Their long-term returns have been strong, though I haven’t quoted them here. However, over time I think both the ETHI ETF and QLTY ETF can do well for investors, particularly with the starting point materially lower than it was at the start of the year.
