The exchange-traded fund (ETF) Betashares Global Quality Leaders ETF (ASX: QLTY) is one of the most appealing options on the ASX, in my view.
When I think about what would make a good ASX ETF, there are a few things I'd like to see. I would want to know that the fund is invested in good businesses, that the fund (usually) makes good returns and it has reasonable fees.
There are quite a few good ASX ETFs out there, there's a lot to like about simpler ideas such as Vanguard MSCI Index International Shares ETF (ASX: VGS). However, wouldn't it be good to invest in the best businesses of the global share market rather than a very large (1,000+) group of global stocks? That's what the QLTY ETF is trying to achieve.
Here are the reasons why I'm a fan of the ASX ETF.
Great businesses
There are many different ways to analyse a business and decide if it's a quality, appealing business or not. This fund tries to make it easy to compare global shares by ranking businesses on four factors.
First, return on equity (ROE). That measures how much profit a business makes compared to how much shareholder money is retained within the business. The higher the ROE, the better.
Second, the businesses need to generate high levels of profit.
Third, the companies should have low leverage, meaning a low level of debt on the balance sheet compared to how big they are.
Fourth, the business should have earnings stability. That doesn't mean profits aren't growing, it just means earnings typically don't go backwards.
There are a total of 150 businesses inside this ASX ETF's portfolio. While the largest positions only have a weighting of just over 2% each, it's worthwhile knowing the types of businesses it's invested in.
Its current biggest holdings are: Visa, Netflix, Meta Platforms, Progressive Corp, Cisco Systems, Coca-Cola, Accenture, Johnson & Johnson, and Costco.
Good returns
Past performance is not a guarantee of future returns, of course, but with how this ASX ETF is set up, I think it has a promising future and can deliver good returns that can outperform the S&P/ASX 200 Index (ASX: XJO) and perhaps better than the overall global share market.
Since the start of the fund in November 2018, the QLTY ETF has returned an average of 16% compared to an average of 15.1% per year for the MSCI World ex-Australia (AUD) – the global share market.
I'm not expecting the next six years to be as good as the last six years due to strong recent returns, but I think the QLTY ETF has compelling features to help it outperform the local share market.
Reasonable fees
A lot of work has gone into researching and creating this ASX ETF's portfolio. I believe the annual management fees and costs of 0.35% are quite fair. It's a lot lower than what many active fund managers may charge, though it's not as cheap as the cheapest ASX ETFs.
However, for me, net returns are the most important thing for an ETF (or any investment) rather than the costs.
The fees with the QLTY ETF are low enough to not be too detrimental to the overall returns. The fees are worth it, in my view.
