The returns of some ASX exchange-traded funds (ETFs), mainly index funds, can be described as 'slow-and-steady'.
That's just fine for fans of these funds. After all, an index fund gives investors access to virtually an entire stock market and delivers the average performance of said market. The tradeoff for this simplicity and hand-off approach is arguably that average return.
But there are some other ASX ETFs on our markets that have caught my eye of late for their eye-watering returns — returns that seemingly put index funds to shame.
So today, let's go through some of these funds and assess whether they are worth chasing as an investment.
3 high-flying ASX ETFs
First up is the VanEck Morningstar Wide Moat ETF (ASX: MOAT). This Warren Buffett-style active ETF has long been a head-turner for delivering outsized ASX returns for investors.
Holding a concentrated portfolio of US stocks, this ETF identifies companies that show signs of possessing a wide economic moat, which is Warren Buffett's way of describing an inherent competitive advantage that a company might possess. Some current holdings include Starbucks, Altria and Campbell Soup.
This style has led to some Buffett-like returns, with MOAT units returning an average of 15.39% per annum over the past five years.
Next, we have the BetaShares Global Cybersecurity ETF (ASX: HACK). This ETF does pretty much what it says on the tin: it offers investors access to a portfolio of global companies that are all leaders in the cybersecurity space. Some current holdings include Broadcom, Fortinet, and Zscaler.
HACK units have returned 22.5% over the past 12 months, and have averaged 8.89% per annum over the past three years and 15.22% per annum over the past five.
Last up, we have the BetaShares Geared US Equity Fund (ASX: GGUS). This ETF is a leveraged ETF, meaning that it employs leveraged (also known as geared or borrowed) funds to amplify its potential gains.
At its core, this fund tracks the American S&P 500 Index (SP: .INX). However, by using leverage, the potential gains can be higher than those enjoyed by the broader market. Of course, this cuts both ways, with GGUS units expected to fall more than the broader market in a downturn.
The Betashares Geared US Equity Fund has returned 37.34% over the 12 months to 31 July and has averaged 6.92% over the past three years and 18.79% per annum over the past five.
Are these funds worth buying today?
I would buy two of these three funds today: the VanEck Wide Moat ETF and the Betashares Cybersecurity ETF.
MOAT has a unique but effective investing methodology, which I think has been vindicated by its long history of delivering for its investors. It comprises many of the highest-calibre companies on the US markets, and, with that Buffett-inspired stock-picking playbook, will continue to kick goals going forward in my view.
HACK doesn't quite fit this mould, being an entirely thematic ETF. Normally I shy away from thematic funds, as they tend to reflect the latest hot trend on the markets. But in this case, I make an exception.
These days, we are reminded of the ever-growing importance of cybersecurity almost weekly. Governments, businesses, and individuals will be increasingly willing to spend top dollar to prevent an embarrassing and potentially harmful data breach. As such, I think this is a trend worth incorporating into an ASX share portfolio.
But I wouldn't invest in or recommend a leveraged ETF like GGUS for most ASX investors. Why? Well, these funds do have the potential to deliver some impressive gains. But they usually use some highly complex financial engineering to do so.
Financial engineering doesn't come cheap, hence why we tend to see very expensive management fees (1% per annum in this case). This can blunt the outsized returns that you might otherwise enjoy.
Further, the potential of a confidence-shattering loss in your portfolio on a normal down day might prompt some investors to sell out at an inopportune moment.
So that's my take on these ASX ETF high flyers. As Meatloaf once said, "Two out of three ain't bad".
