I rate these two ASX ETFs as buys that could beat the ASX 200 over the long term

Global stocks could deliver better returns for investors.

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Key points

  • I don’t think large ASX mining shares or ASX bank shares are going to deliver strong compound earnings growth in the long term
  • The iShares Global 100 ETF is invested in 100 of the largest listed businesses worldwide, so they are all major companies with strong economic positions
  • The Betashares Global Quality Leaders ETF is invested in many of the world’s highest-quality companies, with its holdings rating well on four quality metrics

The ASX exchange-traded funds (ETFs) I'm going to talk about in this article could perform much better than the S&P/ASX 200 Index (ASX: XJO), in my opinion.

Investing in a share that gives exposure to the ASX 200 (or S&P/ASX 300 Index (ASX: XKO) ) isn't a bad option. However, I think that there are better opportunities out there for Aussies to choose from.

Much of ASX 200 is weighted to two sectors, with just a few large businesses having most of that weighting: BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), and ANZ Group Holdings Ltd (ASX: ANZ).

These are such large businesses that I think it will be hard for them to achieve a strong compound annual growth rate (CAGR) for profit over the next three to five years. There may be decent dividends, but I don't think there will be a lot of capital growth or earnings growth.

I believe the businesses within the two ASX ETFs I'm about to tell you about could deliver much more growth over time.

iShares Global 100 ETF (ASX: IOO)

The idea of this ETF is that it's invested in the 100 largest businesses in the world, whether they're listed in a 'developed' or 'emerging' market.

With how capitalism works, the strongest businesses tend to keep getting stronger and stronger as they re-invest in their businesses to reinforce their competitive advantages.

I'd rate global blue chip shares as much stronger businesses than ASX blue chip shares. In the iShares Global 100 ETF portfolio, the biggest businesses are names like Apple, Microsoft, Amazon.com, Nvidia, Alphabet, and JPMorgan Chase.

Around 75% of the portfolio is invested in US shares, but there is also global diversification with a few other countries having sizeable weightings, including the UK, Switzerland, France, Germany, Japan, and South Korea.

Although past performance is not a guarantee of future results, the IOO ETF has delivered an average return per annum of 14.8% over the five years to 30 June 2023. That compares to the average return per annum of 7.2% for the ASX 200.

Betashares Global Quality Leaders ETF (ASX: QLTY)

This ASX ETF is about investing in global businesses that rank well on 'quality' measures. There are many different ways to measure quality but for this fund, there are four factors: return on equity (ROE), debt to capital, cash flow generation ability, and earnings stability.

The combination of those factors means the businesses are making good and stable profits and cash flow in terms of how much shareholder money is invested within the businesses, and their balance sheets are healthy.

This portfolio also has good diversification with 150 global companies outside of Australia.

There isn't that much difference in the weighting levels of most of the investments, but Adobe, Meta Platforms, Tesla, Automatic Data Processing, and Visa are the ones with an allocation of just over 2%.

ASX 200 large-cap shares just don't have the level of quality and growth that these global names do, in my opinion.

The ASX ETF's management fee of 0.35% is fairly cheap considering the amount of thought that has gone into constructing this global portfolio.

Since its inception in November 2018, the QLTY ETF has produced an average return per annum of 13.7%, though past performance is not a reliable indicator of future performance.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. 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. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, 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 Adobe, Alphabet, Amazon.com, Apple, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, Tesla, and Visa. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2024 $420 calls on Adobe and short January 2024 $430 calls on Adobe. The Motley Fool Australia has recommended Adobe, Alphabet, Amazon.com, Apple, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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