ASX-listed exchange-traded funds (ETFs) can provide Aussie investors with exposure or strategic allocation to sectors and companies that their portfolios may lack.
Many Aussies may be shareholders in the largest individual stocks of BHP Group Holdings Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), CSL Ltd (ASX: CSL), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), and ANZ Group Holdings Ltd (ASX: ANZ).
Plenty of other Aussies may have investments in ETFs like Vanguard Australian Shares Index ETF (ASX: VAS), SPDR S&P/ASX 200 ETF (ASX: STW), iShares Core S&P/ASX 200 ETF (ASX: IOZ) and BetaShares Australia 200 ETF (ASX: A200). These ETFs provide the same heavy weighting as those large ASX blue-chip shares I mentioned above.
I believe Aussies would benefit by investing in ASX ETFs that provide exposure to quality businesses from different sectors, listed in different countries. That's why I like the below two options.
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VanEck Morningstar Wide Moat ETF (ASX: MOAT)
The idea of this fund is to invest in competitively advantaged US companies at good prices.
It only considers businesses with an economic moat that are expected almost certainly to endure for the next decade and more. Competitive advantages can come in many forms, including cost advantages, brand power, patents, switching costs, network effects, etc.
With a shortlist of these quality US businesses, the Morningstar analyst team only buys shares when they believe a stock is trading at an attractively below-fair price for that company.
Past performance shouldn't be viewed as a reliable indicator of future performance, but over the past five years, the MOAT ETF has returned an average of 16.2% per annum.
At the moment, the portfolio has three holdings with a weighting of more than 3%: Teradyne, Alphabet, and International Flavors & Fragrances.
VanEck MSCI International Quality ETF (ASX: QUAL)
There are a number of ways to create a quality international portfolio. This ASX ETF applies a number of quality scores based on different financial metrics, leading to a group of high performers with a strong combined score.
To make it into this portfolio of 300 holdings, businesses must have a high return on equity (ROE), earnings stability and low financial leverage. This means that these companies typically do not experience drops in profits. They are able to generate substantial profits relative to the amount of shareholder money (equity) invested in the business and maintain low levels of debt.
These are the businesses inside the portfolio with a weighting of at least 2%: Nvidia, Apple, Microsoft, Meta Platforms, Alphabet, Eli Lilly, Novo Nordisk, ASML and Visa.
Over the past five years the QUAL ETF has returned an average return per annum of 17.6%, though this shouldn't be relied upon to predict future returns.
