The two strong exchange-traded funds (ETFs) in this article are great candidates to buy now and own forever.
I think it makes a lot of sense to invest in ETFs for diversification, but only if getting exposure to good businesses. I think these are two of the best Australians can get.
VanEck MSCI International Quality ETF (ASX: QUAL)
The QUAL ETF owns a portfolio of 300 businesses of across the world. Companies only make it into the portfolio if they tick the boxes on three factors – a high return on equity (ROE), they have earnings stability and have low amounts of debt. In other words, the best of the best.
VanEck says that investments focusing on companies with quality characteristics have delivered outperformance over the long-term relative to global equity benchmarks. We don’t know what future returns are going to be, but recent history has seen quality outperform the overall global share market. The QUAL ETF delivered a net return of an average of 17.75% per year in the last five years, compared to an average of 13.75% per year for the global share market.
While the US does have the biggest allocation of the portfolio – of around three quarters – it does offer decent exposure to other countries like Switzerland, the UK, Japan, the Netherlands, Denmark and France.
At the moment, its biggest positions include Nvidia, Microsoft, Meta Platforms and Apple.
I think the management fee is very reasonable at 0.40% per year.
iShares Global 100 ETF (ASX: IOO)
As the name may suggest, this ETF from Blackrock owns a portfolio of 100 global businesses, being the 100 of the biggest multinational blue chips in the world. They are seen to have “major importance” in global equity markets.
Around 77% of the portfolio is allocated to US-listed businesses. Perhaps unsurprisingly, the IOO ETF also has a material weighting to companies from the UK, Switzerland, France, Japan and Germany.
With only 100 positions in the portfolio, it has a larger weighting to the bigger businesses than other ETFs with many more holdings such as Vanguard MSCI Index International Shares ETF (ASX: VGS), which is invested in over 1,000 businesses.. The biggest companies have been some of the strongest performers over the past decade, so owning the IOO ETF has been a pleasing investment.
Over the past five years the IOO ETF has returned an average of 17% per year. I’m not suggesting that level of performance is going to occur in the next five years, but I really like the exposure the fund gives to Microsoft, Apple, Nvidia, Amazon and Alphabet.
It also has an annual management fee of 0.40%.