Exchange-traded funds (ETFs) can be incredible investments thanks to the returns they can provide and the diversification.
I believe it can be a mistake to only have exposure to Australian companies because there are a lot of great businesses out there which aren’t listed on the ASX. Technology and tech-related businesses have been some of the best investments over the long-term, which the ASX isn’t known for.
We also don’t find many globally-growing businesses at the large end of the ASX either. I think it makes a lot of sense to include investments that provide global diversification that may beat the ASX. I really like these two ETFs on the ASX.
VanEck Morningstar Wide Moat ETF (ASX: MOAT)
The MOAT ETF is a fund that is focused on businesses which are listed on a US stock exchange. It only wants to buy US shares that are rated (by Morningstar) as having strong competitive advantages, also called a wide economic moat.
Having strong competitive advantages allows a business to earn strong profits and have a market share that’s difficult to challenge for competitors. It could be having a medicine brand that customers trust over generic brands, or a drink that people are drawn to over supermarket brands, or an entertainment brand that households are drawn to.
The MOAT ETF looks for various economic moats with businesses, including patent and regulatory advantages, cost advantages, network effects and others.
Some of the businesses currently in the portfolio include Salesforce.com, Bristol-Myers-Squibb, Gilead Sciences, Autodesk, Emerson Electric, US Bancorp and Walt Disney.
Over the last five years, this ETF has achieved an average return per year of 14.5%.
BetaShares Global Sustainability Leaders ETF (ASX: ETHI)
Some investors may want to only own ‘ethical’ businesses in their portfolio and avoid areas like tobacco, alcohol and gambling. The global share market is not dominated by those sectors, but there are certainly a number of businesses from those industries which are quite large.
The ETHI ETF aims to invest in the largest ethical businesses from the global share market.
How does it decide what’s ethical? It excludes businesses involved in fossil fuels, gambling, tobacco, armaments and militarism, destruction of valuable environments, animal cruelty, chemicals of concern, mandatory detention of asylum seekers, alcohol, junk foods, pornography, human right concerns and payday lending.
The sorts of large global businesses that pass those tests, and are also considered climate leaders, are Nvidia, Apple, Visa, Mastercard and Home Depot. It has a total of 200 holdings.
Whether it’s a coincidence or not, this ethical ETF has performed extremely well. Since it started in January 2017, it has returned an average of 16.9% per year.
