One of my favourite ASX-listed exchange-traded funds (ETFs) is the Betashares Global Quality Leaders ETF (ASX: QLTY). I like it for several reasons, with potential capital growth being one of those positives.
Investors often discuss the benefits of investing in highly profitable businesses with strong balance sheets. This fund has implemented rules surrounding those financial characteristics, resulting in a very high-quality portfolio.
In short, the QLTY ETF holds an investment portfolio of 150 international companies ranked highest by their quality scores.
Quality factors
There are four key factors that make up the combined ranking to judge each stock in this portfolio.
The score is based on each company's return on equity (ROE), debt to capital, cash flow generation ability and earnings stability.
In other words, these businesses don't typically see profits drop substantially. They're making real cash profits, they have low levels of debt on their balance sheet relative to their size, and they make good profits for how much shareholder money is retained within the business.
Pleasing performance for investors
When you combine all of those factors, you should have a high-quality business. As I've already mentioned, the portfolio includes 150 quality companies.
At the moment, some of the biggest positions in the ASX ETF's portfolio (which all have a weighting of less than 2.5%) are: Adobe, Accenture, UnitedHealth, Roche, Servicenow, Progressive and Costco.
The collective performance of this group of businesses has delivered excellent returns.
Since the QLTY ETF's inception in November 2018, the fund has delivered an average return per annum of 15.2%. That's approximately double the return of the S&P/ASX 200 Index (ASX: XJO) over the same period.
Over the five years to 30 August 2024, the Betashares Global Quality Leaders ETF has returned an average of 14.1%.
This fund has delivered very pleasing returns over the long term, though past (out)performance is not a guarantee of future returns, of course.
Can the ASX ETF's good returns continue?
We'd need a crystal ball to know what's going to happen next.
But, with the four quality factors involved in the portfolio, I think this ETF is set up to continue doing well.
With a high ROE, the underlying company holdings appear capable of achieving strong returns on money re-invested back into their businesses, which could unlock more profit growth and further shareholder returns. The ASX ETF is an exciting prospect for capital growth, in my opinion.
