There are some extremely high-quality ASX stock investments available to Aussies that are worth a spot in a portfolio.
Share prices and valuations are always changing, but the underlying quality of businesses helps drive long-term returns.
I think the quality of business is usually the biggest driver of whether it can continue growing and investing in itself for longer-term profit growth. If it's lower quality, or doesn't have a strong competitive advantage, then competitors may swoop in and challenge that business.
Having said that, below are two of the highest-quality ASX stock investments we can buy right now, in my opinion.
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VanEck MSCI International Small Cos Quality ETF (ASX: QSML)
This is an exchange-traded fund (ETF) that gives investors exposure to a portfolio of high-quality, smaller businesses listed globally.
I believe smaller businesses generally have more growth potential than large businesses because they are typically earlier on in their growth journey. I'd say it's much easier to double a $5 billion business in size than a $50 billion business.
I'm calling this fund an ASX stock because we can buy it on the ASX.
The fund is invested in 150 of the world's highest-quality small companies. There are three key fundamentals for a business to be chosen for this fund. First, they must have a high return on equity (ROE), earnings stability and low financial leverage. When you put those elements together, it's a strong combination, in my view.
Another appealing element of this investment is that it's diversified. Its 150 businesses currently come from the following markets: the US, the UK, Japan, Switzerland, Sweden, France, Mexico, Bermuda, Israel and Finland.
It's also diversified by sector, with the four largest weightings being industrials, financials, consumer discretionary and IT.
To me, it's not a surprise that the QSML ETF has returned an average of 16.25% per annum in the last three years.
TechnologyOne Ltd (ASX: TNE)
TechnologyOne is one of the most impressive ASX growth stocks, in my opinion. It provides enterprise resource planning (ERP) as a software as a service (SaaS) offering. Its multinational client base includes companies, government agencies, local councils and universities.
The business has an exceptionally high level of customer loyalty, which makes the business defensive, in my opinion. It also says to me that subscribers love the software.
TechnologyOne invests significantly into research and development each year, which helps improve the software and unlocks stronger revenue and profit growth.
The business recently reached $511 million of annual recurring revenue (ARR) in its FY25 half-year result. It's now aiming to reach at least $1 billion of ARR by FY30. I think the company is very capable of reaching that target, particularly if it continues winning new customers in northern hemisphere markets such as the UK.
Due to the nature of software, I'm also expecting the ASX stock to deliver stronger profit margins. I think the combination of strong revenue growth and rising margins could mean excellent bottom-line performance over the long-term and help the TechnologyOne share price climb further in the coming years.
