ASX-listed exchange-traded funds (ETFs) can be a great investment option, and I think there are a few ideas out there that could beat the S&P/ASX 200 Index (ASX: XJO) in the coming years.
I believe the ASX 200 can deliver satisfactory returns over the long term, but there could be ASX ETFs that can deliver stronger returns because of the businesses they're invested in.
ASX companies like BHP Group Ltd (ASX: BHP) and Commonwealth Bank of Australia (ASX: CBA) have demonstrated their ability to achieve industry-leading performance. However, banking and mining aren't exactly known for delivering rapid and consistent earnings growth.
I'm going to talk about two ASX ETFs that I think could outperform the ASX 200.
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VanEck MSCI International Quality ETF (ASX: QUAL)
This fund aims to put together a portfolio of the best global businesses. It has tried to do this in a quantifiable way, so it's not based on opinions.
To enter this portfolio, businesses must rank well on three key fundamentals: a high return on equity (ROE), a high level of earnings stability, and low financial leverage.
In other words, these companies make a lot of profit based on how much shareholder money is in the business. Their profits rarely drop, and their balance sheets don't have much debt.
When you put those factors together, that's a strong combination for a business. The portfolio has 300 of these great businesses from across the world. That's a pleasing level of diversification, in my view.
I think these are the sorts of businesses that are capable of beating the ASX 200 over time.
While past performance is not a guarantee of future returns, this ASX ETF has been remarkably consistent. It has delivered an average return per annum of 15.5% over both the last three years and ten years to 31 January 2025. Volatility will happen, but I think this is a great ASX ETF to own.
VanEck Morningstar Wide Moat ETF (ASX: MOAT)
This ASX ETF is constructed quite differently to the QUAL ETF, but it's still very compelling to me.
The Morningstar analysts in charge of this portfolio look for businesses with strong competitive advantages (called economic moats) that are expected to almost certainly endure for the next decade and more and enable good profits.
Morningstar analysts are looking for several different competitive advantages, such as cost advantages, intangible assets, switching costs, network effects, and efficient scale.
With a watchlist of these great businesses, the MOAT ETF only invests in one when the valuation is attractively below what they think is a fair value price.
Therefore, this ASX ETF owns a portfolio of around 50 US shares which have great competitive advantages and are trading at a good price.
Impressively, the MOAT ETF has returned an average of 16.3% per annum since its inception in June 2015. Again, I'm not expecting future returns to be as good as that, but I think the ASX ETF has a high potential to beat the ASX 200 in the coming five years.
