2 top ASX ETFs I'd buy with the goal of long-term capital growth

Here's why I like the look of these ETFs.

| More on:
a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.

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

  • I think ASX ETFs focused on quality can do really well at growing people’s wealth
  • VanEck MSCI International Quality ETF is invested in 300 businesses that have a high return on equity, earnings stability, and low financial leverage
  • Vaneck Morningstar Wide Moat ETF is invested in businesses with strong economic moats at good prices

Exchange-traded funds (ETFs) are a popular way to invest. Certainly, I think ASX ETFs can be a very good way to build wealth. There are two in particular I'm going to tell you about which I think can deliver strong long-term capital growth.

There are some businesses that may deliver decent returns through dividends. But others can deliver good capital growth thanks to strong customer demand, a lot of re-investment by the companies, and an attractive return on equity (ROE).

With that in mind, I think ETFs that are focused on businesses with quality metrics can do well. Here are two that stand out.

VanEck MSCI International Quality ETF (ASX: QUAL)

This ASX ETF offers Aussie investors international diversification. It's invested in around 300 businesses around the world. The following countries currently have a weighting of more than 1%: the US (74.2%), Switzerland (6.1%), Japan (3.7%), the Netherlands (3.3%), the UK (3.1%), Denmark (2.7%), Ireland (1.6%), France (1.3%), and Canada (1.2%).

But there's more to this ETF than simply diversification. It is invested in what VanEck calls the world's "highest-quality companies based on key fundamentals", including a high return on equity, earnings stability, and low financial leverage.

As of 1 May 2023, its biggest holdings included Microsoft, Apple, Nvidia, Meta Platforms, and Home Depot.

Of course, past performance is not a guarantee of future results. But, in the five years to March 2023, the ASX ETF achieved an average return per annum of 14%. It outperformed the global share market (as measured by the MSCI World ex Australia Index) which returned an average of 11% per annum over the same time period.

I think the quality of the underlying businesses can help the ASX ETF continue to deliver good capital returns.

Vaneck Morningstar Wide Moat ETF (ASX: MOAT)

This is one of my favourite ETFs on the ASX.

It's focused on US businesses that have a strong 'economic moat'. An economic moat can also be called a company's competitive advantage. It describes the ability of a business to fight off competitors or maintain its advantage. Economic moats can come in a number of different forms such as brand power, intellectual property, network effects, and cost advantages.

The analysts that decide which businesses to invest in decide on a watchlist of businesses that have an economic moat that will, in their eyes, almost certainly endure for the next decade and, more likely than not, the next two decades.

With that watchlist, the ETF invests in "targets companies trading at attractive prices relative to Morningstar's estimate of fair value".

The investment strategy has been effective. The Vaneck Morningstar Wide Moat ETF has returned an average of 16.8% per annum over the past five years.

On 1 May 2023, it had 49 holdings, with these five being the biggest holdings: Meta Platforms, Salesforce.com, Microsoft, Medtronic, and Comcast.

Foolish takeaway

I like the investment style of these two ASX ETFs and I think they can provide a mixture of both diversification and good returns.

Out of the two, I prefer the MOAT ETF but, let's be clear, I also really like the QUAL ETF.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. 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 Apple, Home Depot, Meta Platforms, Microsoft, Nvidia, and Salesforce. The Motley Fool Australia has recommended Apple, Meta Platforms, Nvidia, Salesforce, and VanEck 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

A man points at a paper as he holds an alarm clock.
ETFs

3 highly rated ASX ETFs to buy and hold

Buy and hold investors might want to check out these top funds.

Read more »

The letters ETF with a man pointing at it.
ETFs

Invest $10,000 into these ASX ETFs next week

These ETFs provide investors with access to some high quality companeis.

Read more »

Businessman at the beach building a wall around his sandcastle, signifying protecting his business.
ETFs

Is the Vaneck Morningstar Wide Moat ETF (MOAT) a good long-term investment?

Is this ASX ETF a top pick to hold for years to come?

Read more »

ETF with different images around it on top of a tablet.
ETFs

4 quality ASX ETFs to buy after the market sell-off

Here's why these funds could be buys after recent market volatility.

Read more »

Hand holding Australian dollar (AUD) bills, symbolising ex dividend day. Passive income.
ETFs

Own Vanguard Australian Shares Index ETF (VAS) units? It's payday for you!

Find out what distribution VAS ETF is sending to bank accounts today.

Read more »

A young office worker is surrounded by peers who are clapping and congratulating her.
ETFs

3 reasons I think this fantastic ASX ETF is a top buy

Quality is just one factor that makes this ETF is a great pick, in my opinion.

Read more »

Three people in a corporate office pour over a tablet, ready to invest.
ETFs

4 ASX ETFs for growth investors to buy this month

These ETFs give investors easy access to large group of growth shares.

Read more »

A young woman with glasses holds a pencil to her lips as she is surrounded by the reflection of data as though she is being photographed through a glass screen project with digital data.
ETFs

This compelling ASX ETF may be a better way to invest in Aussie stocks than Vanguard Australian Shares Index ETF (VAS)

This ASX ETF could be an even more effective investment than Vanguard’s.

Read more »