I love the idea of investing in ASX shares for my child. I believe stocks will be able to deliver much stronger returns than cash and interest can do. There are many years until my child becomes an adult, which means many years of potential compounding.
ASX blue chips wouldn't be a bad idea, and I do really like the look of BetaShares Global Sustainability Leaders ETF (ASX: ETHI).
But, I like the two names below for their underlying characteristics and the long-term potential growth.
Betashares Global Quality Leaders ETF (ASX: QLTY)
This exchange-traded fund (ETF) has a portfolio of global businesses from around the world. Its holdings include 150 companies, with around two-thirds of the portfolio currently allocated to US shares. Other countries with sizeable weightings include Japan (11.7%), the Netherlands (4%), France (3.4%), Denmark (2.6%), Switzerland (2.1%) and the United Kingdom (2%).
The ETF selects stocks that rank well on a combined four factors. They include return on equity (ROE), debt to capital, cash flow generation and earnings stability.
At the moment, the biggest positions in the portfolio are Nvidia, ASML, Meta Platforms, Applied Materials and Intuit. But, while the ETF may change holdings over the years, the portfolio's characteristics will stay the same year after year. It's very profitable for shareholders with stable earnings, low debt and good cash flow.
Over the past five years, the QLTY ETF has delivered an average return per annum of 15.4%. Past performance is no guarantee of future returns, but even compounding at 10% per annum would be useful for growing an investment for my child.
Frontier Digital Ventures Ltd (ASX: FDV)
This ASX small-cap share is much riskier than the QLTY ETF. Indeed, it's likely to be more volatile than most S&P/ASX 200 Index (ASX: XJO) shares. However, in my mind, share price volatility and operational business risks are not the same thing. I'm happy to hold through volatility if the business has a compelling long-term future.
Not many Aussies may have heard of this business, but it has a very exciting thesis, in my opinion.
The company aims to become the world leader in online marketplace businesses in emerging markets, with a particular focus on property and automotive sectors, as well as general marketplace websites.
It looks for local partners and teams that have "integrity, unwavering self-belief in their online marketplace business and extraordinary passion to make it succeed".
For example, it's invested in Fincaraiz, the leading real estate marketplace in Colombia. It owns a stake in Infocasas, the leading property portfolio in Uruguay and Paraguay, and is a key player in Bolivia. The ASX share is also invested in Yapo, the leading general classifieds portal in Chile.
It's invested in several other businesses, including Zameen and Pakwheels, the leading property portal and auto portal in Pakistan. Other investments give it the leading auto portal in the Philippines and Myanmar.
After digital infrastructure has been built, these companies can benefit from the growing number of users. Digital businesses can achieve a lot of operating leverage. The gross profit margin of these businesses is normally high, so revenue growth can deliver strong improvements for the earnings before interest, tax, depreciation and amortisation (EBITDA).
Frontier Digital Ventures is now starting to make positive EBITDA and positive cash flow. This significantly de-risks the business in my eyes. In five or ten years, I think this company could make much more operational profit if those emerging market businesses keep scaling.
