When it comes to exchange traded funds (ETFs) on the ASX, to say you’re spoilt for choice would be an understatement. You can go vanilla and just buy an ASX 200 ETF like iShares Core S&P/ASX 200 ETF (ASX: IOZ) or an ETF that focuses on spitting out big dividend yields like SPDR MSCI Australia Select High Dividend Yield Fund (ASX: SYI).
But ETFs don’t stop there – there are some slightly more exotic offerings like the BetaShares Global Cybersecurity ETF (ASX: HACK), for example. But of all the offerings (and there are a lot), there is one ETF that is my personal favourite – and it’s a nice mix of the vanilla and the more exotic (in my opinion anyway).
The VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT) is my favourite ASX ETF for two reasons.
The first is that it only invests in what VanEck calls “attractively priced companies with sustainable competitive advantages” over in the United States (US). The US stock markets are home to most of the best companies of the world and you get most of them with MOAT. A ‘sustainable competitive advantage’ indicates that a company has an ability to protect its earnings from competitors through branding, market or pricing power.
Take Kellogg’s, a cereal company with some of the most recognisable brands in the breakfast business – just think Rice Bubbles, Coco-Puffs and Corn Flakes. Sure, you can buy another company’s ‘rice puffs’, but they’re not Rice Bubbles and plenty of customers won’t compromise. That’s part of the reason why Kellogg’s is one of MOAT’s biggest positions at the current time. Other top holdings include Western Union, Amazon, Facebook, McDonald’s and Disney – all companies with similar advantages.
The second reason MOAT is my favourite ETF is its performance history. Over the past year, MOAT has delivered a 19.91% return. If we go out to three and five years, MOAT has returned 18.27% and 18.96% per annum, respectively. This compares with the S&P 500 index (unhedged) return of 17.12%, 17.37% and 18.37% for the same periods. Finding an ETF that can consistently beat the S&P 500 is a rare feat, but MOAT delivers the goods.
There are many quality ETFs available on the ASX, but MOAT is my personal favourite. With international diversification, quality companies, an excellent performance record and a 2.12% trailing yield, you could certainly do a lot worse.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Sebastian Bowen owns shares of Facebook and VanEck Vectors Morningstar Wide Moat ETF. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Facebook. The Motley Fool Australia owns shares of BETA CYBER ETF UNITS. The Motley Fool Australia has recommended Facebook and VanEck Vectors Morningstar Wide Moat ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.