There’s a lot of uncertainty in the market at the moment. I’d look to quality exchange-traded funds (ETFs) that could deliver returns.
Higher interest rates, sticky inflation, over indebtedness in some areas and so on mean the next 12 months could be difficult for some parts of the market. High-quality businesses may outperform the wider market. We can buy a whole group of them with ETFs that are aimed at good businesses.
Betashares Global Quality Leaders ETF (ASX: QLTY)
This ETF is invested in businesses from around the world, with the majority (62.4%) based in the US. Other countries with a sizeable presence in the portfolio include Japan, the Netherlands, France, Denmark, Switzerland, the UK, Canada and Sweden.
There are a total of 150 businesses that rank well on four specific factors – return on equity (ROE), debt to capital, cashflow generation ability and earnings stability. These are the sorts of metrics I’d want my businesses to have.
Having low debt should mean less impact from higher interest rates.
The sorts of businesses it’s invested in include Adobe Inc (NASDAQ: ADBE), Novo Nordisk A/S (CPH: NOVO-B), Cisco Systems Inc (NASDAQ: CSCO), Automatic Data Processing Inc (NASDAQ: ADP), Meta Platforms Inc (NASDAQ: META) and Alphabet Inc Class A (NASDAQ: GOOGL).
Since the ETF’s inception in November 2018, the QLTY ETF has delivered an average return per year of 14%.
Vaneck Morningstar Wide Moat ETF (ASX: MOAT)
The MOAT ETF has a focus on quality US companies Morningstar believes possess sustainable competitive advantages, or “wide economic moats”.
It targets US companies where the competitive advantages are expected to almost certainly endure for a decade and probably for at least two decades.
These target companies must be trading at attractive prices relative to Morningstar’s estimate of fair value to be invested for the portfolio.
The portfolio list regularly changes, but at the moment its biggest positions include Domino’s Pizza Inc (NYSE: DPZ) (the US business), Veeva Systems Inc (NYSE: VEEV), Alphabet, TransUnion (NYSE: TRU) and Emerson Electric Co (NYSE: EMR). It usually has around 50 holdings in the portfolio.
Since the ETF started it June 2015, it has delivered an average return per year of 16%, though past performance shouldn’t be relied on for future performance.
For me, this is one of the most effective ETFs on the ASX and has the attributes to do well – it mixes high-quality, long-term businesses with a combination of investing at a good price.
