There are some wonderful ASX-listed exchange-traded funds (ETFs) that I believe have great potential to perform strongly and could outperform the S&P/ASX 200 Index (ASX: XJO) over the next few years.
That confidence is due to the focus on quality stocks within these ASX ETFs. I'll highlight two in this article, but I regularly like to write about others, too.
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Betashares Global Quality Leaders ETF (ASX: QLTY)
This fund is about identifying 150 of the highest-quality stocks globally.
It looks throughout the global stock market to identify businesses with four quality characteristics.
First, these businesses have a high return on equity (ROE). That means they make a high level of profit for the amount of shareholder money retained within the business.
Second, they demonstrate a high level of profitability. Obviously, being in business is all about making a profit, and these businesses are very good in that regard.
Third, these companies should have low financial leverage for their size. In other words, the debt level is very sustainable.
Finally, the ASX ETF wants to see that the businesses have a high level of earnings stability. It's likely you won't see the profits of these companies go backwards in any given year.
Past performance is not a guarantee of future returns, but the QLTY ETF has delivered an average annual return of 14.9% since its inception in November 2018. I think the combination of these quality factors could help the portfolio continue to outperform the ASX 200 over the long term.
WCM Quality Global Growth Fund (ASX: WCMQ)
This is an active ETF provided by the fund manager, WCM.
It aims to provide access to quality global companies found primarily in the high-growth consumer, technology, and healthcare sectors.
WCM says its investment process is based on the belief that corporate culture is the biggest influence on a company's ability to grow its competitive advantage or 'moat'.
The fund manager believes Australian investors can benefit from its focus on technology, healthcare, and consumer because those sectors represent a relatively small proportion of the local ASX market.
The ASX ETF's portfolio holds no more than between 30 to 40 companies, chosen from a universe of more than 2,000 businesses. That means the portfolio ends up being "high conviction" and ensures "the investment team's best ideas aren't diluted by less compelling ones."
At the end of May 2025, some of the biggest positions in the portfolio include Applovin, 3i Group, Saab, and Amazon.
Impressively, over the last five years, the WCMQ ETF has delivered an average annual return of 15% after fees.
Thanks to the excellent qualities of the businesses in both of these ASX ETFs, I think they have a strong long-term outlook.
