There are a handful of ASX exchange-traded funds (ETFs) that I think can deliver outperformance in 2023 because of the types of businesses that they're invested in.
2022 has been a rough year for a number of segments of the share market. ASX growth shares and bond-like ASX shares (such as real estate investment trusts (REITs)) have had a tough time as higher interest rates bite. 'Quality' has also suffered.
However, I think investors have already accounted for the headwind of higher interest rates. The main problem now could be for particular businesses when investors are disappointed by earnings announcements.
From here, in the current environment, I think it will be companies ranking well on quality metrics that can do well to weather whatever happens next. That's why I like these two ASX ETFs.
VanEck Morningstar Wide Moat ETF (ASX: MOAT)
This ETF is one of my preferred investment ideas. The portfolio is put together by analysts at Morningstar.
The analysts focus on quality US companies that are believed to have "sustainable competitive advantages" or "wide economic moats". That refers to things like cost advantages, brand, network effects, intellectual property, and so on.
But, these quality businesses are only purchased when they are trading at attractive prices compared to Morningstar's estimate of fair value.
While past performance isn't a guarantee of future results, I think the historical outperformance shows that this investing method can deliver. Over the prior five years to October 2022, the VanEck Morningstar Wide Moat ETF has delivered an average return per annum of 15.1% compared to an average return of 13.9% per year for the S&P 500.
Some of the biggest positions right now in the ASX ETF are: Biogen, Gilead Sciences, Etsy, Mercado Libre, Emerson Electric, Boeing, and Blackrock.
VanEck MSCI International Quality ETF (ASX: QUAL)
The idea behind this ETF is to "access the world's highest quality companies based on key fundamentals". These include a high return on equity, earnings stability, and low financial leverage.
What this suggests is that investors are getting exposure to a group of companies that make strong, stable profits for shareholders, while having low levels of debt on their balance sheets.
According to VanEck, the companies with these sorts of 'quality' metrics have "delivered outperformance over the long term relative to global equity benchmarks".
However, past performance is not a guarantee of future performance. The VanEck MSCI International Quality ETF has returned an average of 12.8% per annum over the five years to 31 October 2022, compared to a 10.4% return per annum for the MSCI World excluding Australia Index.
Positions in the 300-name portfolio include Apple, Microsoft, Johnson & Johnson, UnitedHealth, and Visa.
Around three-quarters of the ASX ETF's portfolio is invested in businesses listed in the US, while the rest come from countries like Switzerland, Japan, the UK, the Netherlands, and Denmark.
