ASX exchange-traded funds (ETFs) are an easy way for investors to invest in the stock market. I'm going to tell you about two leading options that I'd love to have in my portfolio for FY24 and the long term.
I love investment options that provide international diversification because the global share market offers a myriad of different opportunities compared to ASX-only investments.
Australia is a great country and there are many fine investments on the ASX. However, if I had to pick two ETFs to do well in FY24 then I'd name the below two as the strongest contenders.
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BetaShares Global Sustainability Leaders ETF (ASX: ETHI)
As BetaShares says, this fund invests in a portfolio of large global stocks identified as climate leaders that have also passed 'screens' to exclude certain companies. These include those with "direct or significant exposure" to fossil fuels or engaged in activities deemed "inconsistent with responsible investment considerations", such as significant exposure to alcohol or tobacco.
There are a total of 200 businesses in the portfolio, with recognisable names like Nvidia, Apple, Visa, Mastercard, Home Depot, Salesforce, and Adobe among the biggest weightings.
How well does it tick the diversification box? The US gets the lion's share with a 70% weighting as of 31 May 2023, but Japan (9.1%), Germany (4.4%), the Netherlands (3.8%), Canada (2.2%), the UK (2%), and Hong Kong (2%) each have a weighting of at least 2%.
Past performance is not necessarily a reliable indicator of future performance but since its inception date in January 2017, it has produced an average return per annum of 16.8%.
Vaneck Morningstar Wide Moat ETF (ASX: MOAT)
The MOAT ETF has an investment focus on "quality US companies Morningstar believes possess sustainable competitive advantages, or wide economic moats".
Morningstar thinks that economic moats typically fit into one of five categories: cost advantages, intangible assets (e.g. patents, brands, or regulatory licenses), switching costs, network effects, and efficient scale.
At the time of writing, some of the companies in the ASX ETF's portfolio that qualify as having sustainable economic moats include TransUnion, Tyler Technologies, Zimmer Biomet, Ecolab, Equifax, and Veeva Systems.
The businesses are only chosen for the portfolio if they're trading at an attractive price relative to Morningstar's estimate of fair value for that business.
Over the five years to 31 May 2023, the MOAT ETF has delivered an average return per annum of around 17%. But, I don't think we can assume future returns will be anywhere near as strong over the next five years.
There are currently 53 positions in the portfolio from a variety of sectors, so it's fairly well diversified. All the positions are invested in US businesses, though this does provide Aussies with diversification away from ASX companies.
