I think these exchange-traded funds (ETFs) are some of the best ones to own for the long-term because of their underlying quality.
ETFs can be great options for providing diversification and generating long-term returns because of the exposure to different businesses we can find.
I’d prefer to have significant exposure to companies that are achieving a satisfactory level of earnings growth because that’s a key ingredient for share price growth, in my view. That’s why, overall, the ASX share market doesn’t appeal to me very much, despite the benefit of franking credits, there isn’t a lot of earnings growth going on. Instead, I really like these two options:
VanEck Morningstar Wide Moat ETF (ASX: MOAT)
This ETF is all about investing in some of the best US shares available right now. The Morningstar analyst team are looking for companies that have wide economic moats, which means having competitive advantages that are expected to last for two decades.
The idea of an economic moat is that it makes it very difficult for competitors to challenge and overtake the company. Some of the businesses in the portfolio include Campbell Soup, Adobe, Starbucks, Nike, Alphabet (Google), Salesforce.com, Amazon.com, Microsoft and Walt Disney. These companies would be extremely difficult to replace.
The MOAT ETF only invests in the ‘wide moat’ companies when their share prices are at an attractive level compared to what Morningstar thinks they’re worth.
Since inception in June 2015, the MOAT ETF has returned an average of more than 15% per year, but we can’t expect that level of return to continue.
Vanguard MSCI Index International Shares ETF (ASX: VGS)
This option comes with more diversification than the MOAT ETF because it’s invested in more than 1,300 businesses across the world. Its purpose is to track the returns of global shares from major developed countries like the US, Japan, the UK, Canada, France and so on.
The holdings that have the biggest weightings in the portfolio are the biggest companies in the world, which include Apple, Microsoft, Nvidia, Alphabet, Amazon.com and Meta Platforms.
I think the global share market is higher quality than the ASX share market, and I think the VGS ETF’s portfolio return on equity (ROE) of 19.6% shows how well the underlying companies’ profits are performing for shareholders. It’s also a good sign of the level of return those companies could generate for each dollar they reinvest in their businesses.
In the past five years, the VGS ETF has returned an average of 13.5% per year, and I think it can continue outperforming the ASX share market over the long-term.
