I reckon that exchange-traded funds (ETFs) are one of the easiest and best ways to build financial strength. This article is about two ETFs I’d buy in July.
Investing in property is effective if things go well, but it takes a lot of cash upfront to start and usually means taking on a lot of debt. Things can go wrong if the tenant stops paying (or there’s no tenant).
I love the idea of these two ETFs.
Betashares Global Quality Leaders ETF (ASX: QLTY)
With the uncertainty of what’s going to happen with the global economy following all of these interest rate rises, I believe that businesses with strong quality metrics that will outperform from here.
To get into the portfolio, businesses are selected on a combined ranking of four factors – return on equity (ROE), debt to capital, cash flow generation ability and earnings stability.
This means it makes good money for shareholders, there’s little debt, it makes good cash flow and profit is typically stable (and hopefully grows).
This combination of factors means that the respective businesses are in a good position to handle whatever comes next economically.
There are a total of 150 businesses in the portfolio from around the world, providing investors with good geographic diversification.
There is a large investment in the IT sector, which can typically provide investors with good returns because those businesses are growing faster than average.
VanEck Morningstar International Wide Moat ETF (ASX: GOAT)
This is one of my favourite ETFs because it ticks all of the boxes that I want to see.
As the name points out, it gives investors access to a global portfolio, meaning it has great diversification.
This ETF is about investing in stocks that have strong economic moats, or great competitive advantages. Warren Buffett likes to make the example that people are going to choose a Coke over a generic drink, because of the brand power of Coca Cola.
With a list of high-quality, competitively advantaged businesses, Morningstar then only decides to invest if the businesses are valued at a good price compared to how much Morningstar thinks the business is actually worth.
Therefore, it only invests in great businesses at appealing prices, so the portfolio could deliver great performance from here.
