ASX-listed exchange-traded funds (ETFs) can be very effective investments for investors. They can provide good returns and diversification, which is a powerful combination.
The ASX is a great stock exchange, but it's dominated by ASX bank shares and ASX mining shares. The global share market can offer a large universe to find opportunities instead.
But we don't need to hunt down all the best stocks ourselves; we can use ETFs for that task. Below are two of the highest-quality ideas, in my opinion.
Betashares Global Quality Leaders ETF (ASX: QLTY)
This fund is about putting together 150 of the highest-quality businesses from the global share market.
For a business to enter this portfolio, it needs to rank well on four key factors: return on equity (ROE), debt to capital, cash flow generation ability, and earnings stability.
In other words, these businesses make a high profit for how much shareholder money is retained within the business. They have low levels of debt for their size, their accounting profits are turning into real cash flow hitting the bank account, and their profits don't usually go backwards.
For a business to score well on all four of these factors, it would have to be one of the best in the world.
Currently, the six largest positions in the ASX ETF portfolio include Netflix, Intuit, Microsoft, Nvidia, Meta Platforms, and Costco.
All of this quality comes with an annual management fee of just 0.35%, which I believe is very reasonable.
The portfolio has performed very impressively. Since its inception in November 2018, it has returned an average of 14.9% per year. Past performance is not a guarantee of future returns, of course.
WCM Quality Global Growth Fund (ASX: WCMQ)
This is an active ASX ETF, where fund managers have put the portfolio together. It chooses stocks from the global share market.
The fund manager WCM believes that corporate culture is the biggest influence on a company's ability to grow its competitive advantage, also called an economic moat.
Typically, WCM looks for opportunities in the high-growth consumer, technology, and healthcare sectors.
Its four largest positions are AppLovin, 3i Group, Saab, and Amazon. Since its inception in August 2018, the fund has delivered an average annual return of 14.5%. Time will tell whether WCM's returns can continue as strongly as that.
I like that the ASX ETF can be selective about which stocks to invest in, wherever those opportunities are around the world.
