The Vanguard Australian Shares Index ETF (ASX: VAS) is a leading exchange-traded fund (ETF), allowing Aussies to gain exposure to the largest businesses on the ASX.
But, the businesses on the ASX only account for around 2% of the global share market. So, I think it'd be a good idea to have exposure to some of the thousands of businesses listed overseas. There are plenty of wonderful companies listed in Australia, but there are a lot of global winners listed in other locations such as the US, the UK, Europe, Japan and so on.
Rather than trying to identify those individual winners ourselves, we can utilise ASX ETFs as a way to improve our portfolio diversification and hopefully increase our portfolio's returns too. I'm not suggesting selling any VAS ETF units, but I believe it'd be a good idea to focus new investment dollars on globally diversified international share ideas.
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VanEck MSCI International Quality ETF (ASX: QUAL)
The first ASX ETF I'll tell you about is the QUAL ETF – the largest ETF in my portfolio. I like it for a few different reasons.
For a company to be considered for this portfolio, it must rank well on a combined score across three attributes – a high return on equity (ROE), earnings stability and have low financial leverage.
A high return on equity means the business is generating a high level of profit for the amount of shareholder money retained within the company (this includes not only cash but also other assets).
Earnings stability suggests profit generation usually rises rather than falls each year, which is supportive for share prices (and dividend growth).
Low financial leverage means the company has low levels of debt for its size. That means smaller (or no) interest payments and the company's balance sheet is in a healthy position.
It's a portfolio of around 300 stocks, so it offers good diversification compared to the VAS ETF. The businesses come from multiple countries and sectors, so it's pleasingly diversified in a number of ways.
Over the last five years, it has delivered an average return per year of 14.6%, showing the capability of the collective group. Of course, past performance is not a guarantee of future performance.
Betashares FTSE 100 (ASX: F100)
The F100 ETF is a fund that provides exposure to the largest 100 companies (by market capitalisation) that trades on the London Stock Exchange.
The ASX and the US aren't the only places to invest in appealing blue-chip businesses. I'd describe the businesses in the F100 ETF as global businesses, they just happen to be listed in London.
We're talking about names like Astrazeneca, Shell, HSBC, Unilever, Rolls-Royce, Relx, British American Tobacco, BP, GSK and BAE Systems.
I also believe this portfolio is diversified. There are five sectors with a weighting of more than 9.5%: financials (23.7%), consumer staples (18.2%), industrials (16.3%), healthcare (10.9%) and energy (9.7%).
In the five years to May 2025, the VAS ETF has delivered an average return per year of 12%. The F100 ETF has returned an average of 13.8% per year in the five years to May 2025. Again, past performance is not a guarantee of future performance, but I think both of these ASX ETFs are compelling options for future returns and diversification.
