This year has been defined by a lot of volatility, mostly declines. I think this is a great time to go investing in top ASX shares.
Interestingly, the rising interest rates have hit some of the highest-quality businesses the hardest. Some companies may be better at handling economic downturns, but higher interest rates have had a widespread effect on valuations, even if the business' operations haven't been affected much (yet).
I think we can see how hard quality businesses have been hit by looking at the return of the Betashares Global Quality Leaders ETF (ASX: QLTY). This is a globally-focused exchange-traded fund (ETF) that looks for businesses that rank well on return on equity, debt-to-capital, cash flow generation ability and earnings stability.
Despite that focus on quality, resilient businesses, the ETF is down 21% since the start of 2022, while the Vanguard MSCI Index International Shares ETF (ASX: VGS) is only down around 13%. However, from the current levels, I think it's the quality (ASX) shares that are going to do better from here, particularly on the revenue and/or profit.
How I'd build a portfolio in top ASX shares
Over the long term, I think that 'better' businesses are likely to outperform ones that don't have attractive features.
There are plenty of different factors that investors can look for, such as good management, a solid balance sheet, a good growth record, a compelling business model, attractive plans and so on.
For me, one of the things that can make a business really stand out as a potential opportunity is international growth.
Australia is a great place to do business in. It's a huge country with a lot of land for resources and agriculture. However, the population is small, relatively speaking. So, the growth ceiling is pretty low in most industries compared to markets like the US, Asia, Europe or essentially most of the world.
This gives an ASX share a much larger potential growth runway. But, just because it's targeting overseas growth doesn't automatically mean it will be successful.
For me, some of the businesses that tick many quality boxes, including international growth, include Xero Limited (ASX: XRO), Breville Group Ltd (ASX: BRG), Premier Investments Limited (ASX: PMV), REA Group Limited (ASX: REA), Reece Ltd (ASX: REH), Idp Education Ltd (ASX: IEL), Lovisa Holdings Ltd (ASX: LOV), and Altium Limited (ASX: ALU).
I'm also very interested in the retail ASX share sector at the moment, due to the market's pessimism. After recent declines, I think names like Wesfarmers Ltd (ASX: WES), Nick Scali Limited (ASX: NCK), Adairs Ltd (ASX: ADH), and Universal Store Holdings Ltd (ASX: UNI) are interesting.
I also like the VanEck Morningstar Wide Moat ETF (ASX: MOAT), which gives Aussie investors exposure to US shares with strong competitive advantages that are expected to endure for many years.
Foolish takeaway
A big part of investing is choosing a good investment and then being patient. The prices that the ASX share market is presenting look too good to ignore — I believe it's a good time to go hunting businesses at cheaper prices.
