2 quality-focused ETFs I'd load up on in August

Quality ETF options could be the way to go in this market.

| More on:
A smiling woman looks at her computer laptop in her home with warm lights in the background feeling happy to see the EMvision share price rising

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Both of these ETFs are focused on quality businesses
  • They invest in global names that are judged to have attractive features, such as Microsoft
  • Both ETFs have outperformed well-known benchmarks

ASX shares and global shares have been punished in 2022. However, I think there are a few quality exchange traded funds (ETFs) that could be effective investments in this environment.

With share prices down so much across a wide variety of sectors, it may be hard to know which opportunity to go for.

ETFs give us the opportunity to buy a whole index, like the S&P/ASX 200 Index (ASX: XJO), or perhaps to increase an allocation to a specific sector or investing style.

'Quality' can mean many different things to different investors. But, if businesses tick multiple boxes, then I believe they have a good chance of doing well over the longer term.

With that in mind, here are two leading quality ETFs that I'd buy in August.

Betashares Global Quality Leaders ETF (ASX: QLTY)

The QLTY ETF looks much more attractive after falling just over 20% in 2022.

As BetaShares says, the ETF is invested in 150 of the world's highest-quality companies.

But how are those businesses judged to be high-quality? There are quality rankings for a few different factors: return on equity, debt to capital, cash flow generation ability, and earnings stability. When you put those four elements together, a business that scores well on all four has a decent chance of producing solid returns.

Despite falling 23.5% over the six months to 30 June 2022, the fund's average return per annum of 8.1% over the prior three years was stronger than the 7.83% per annum return of the MSCI World ex-Australia Index over the same time period.

While there isn't much investment concentration in the fund, with the biggest holding only having a 2.1% weighting, these are some of the biggest allocations: Visa, Accenture, Automatic Data Processing, Cisco Systems, Intel, Johnson & Johnson, Microsoft, Novartis, and Novo Nordisk.

I like the combination of quality and geographic diversification with this ETF. Only 60% of the portfolio is invested in US shares, compared to 70% for the global share market benchmark.

VanEck Morningstar Wide Moat ETF (ASX: MOAT)

This is another quality ETF focused on businesses in the US.

However, there are fewer businesses in this portfolio. On 30 June 2022, there were a total of 50 positions.

Let's look at the ETF's biggest holdings: Kellogg, Veeva Systems, Gilead Sciences, Biogen, Ecolab, Western Union, Polaris, Microsoft, Masco, and 3M.

A key focus of this ETF is on quality US companies that have "sustainable competitive advantages", which can also be described as "wide economic moats".

Competitive advantages can come in a number of different forms including brand power, intellectual property, costs, and so on.

The analysts at Morningstar believe the companies in this quality ETF can maintain their competitive advantages for at least the next decade and perhaps for two decades or more.

The MOAT ETF has outperformed the S&P 500. Since June 2015, the ETF has returned an average of around 14% per annum compared to an average return per annum of 11.8% from the S&P 500.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Cisco Systems, Gilead Sciences, Intel, Microsoft, and Visa. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended 3M and Johnson & Johnson and has recommended the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool Australia has recommended VanEck Vectors Morningstar Wide Moat ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ETFs

Man holding Australian dollar notes, symbolising dividends.
ETFs

Want the latest dividend from the Vanguard Australia Shares ETF (VAS)? Here's what you have to do

If you want to bag the latest VAS dividend, here's what you need to do.

Read more »

Man holding out Australian dollar notes, symbolising dividends.
ETFs

Why these ASX income ETFs could be top options

Here's how investors can use ETFs to generate income.

Read more »

ETF written on cubes sitting on piles of coins.
ETFs

2 rewarding ASX ETFs I'd buy to build a second income

There are a few different ETFs that can provide good dividends. Here are two.

Read more »

A young man wearing glasses writes down his stock picks in his living room.
ETFs

The pros and cons of buying the iShares S&P 500 ETF (IVV) right now

It’s important to ask the question of whether it’s a good time to buy.

Read more »

A graphic illustration with the words NASDAQ atop a US city and currency
ETFs

How much would I have now if I'd invested $10,000 in the BetaShares Nasdaq 100 ETF (NDQ) a year ago?

Was it a good idea to buy this ETF a year ago?

Read more »

young man smiling in blue shirt
ETFs

Invest $500 in these outstanding ASX ETFs

Could these ETFs deliver the goods for investors over the long term?

Read more »

A group of young ASX investors sitting around a laptop with an older lady standing behind them explaining how investing works.
ETFs

Buy and hold these ASX ETFs until 2034

These ETFs could be great long-term options. Let's see why.

Read more »

ETF on white blocks with a rising arrow on top of coin piles.
52-Week Highs

12 ASX ETFs breaking the mould to hit 52-week highs today

What a day for ASX ETF investors!

Read more »