The S&P/ASX 200 Index (ASX: XJO) is a solid index for Aussie investors to gain exposure to through an investment like iShares Core S&P/ASX 200 ETF (ASX: IOZ). However, I think there are multiple ASX-listed exchange-traded funds (ETFs) that have all the characteristics needed to beat the ASX 200.
I'm thinking about gaining exposure to businesses with large addressable markets, good shareholder financial metrics, healthy balance sheets and a good track record of earnings growth.
When companies are looking to expand globally, it gives them a much larger growth runway. This allows them to deliver stronger returns over the long-term. The below two ASX ETFs are exactly what I'm looking to allocate some future funds to.
Global X S&P World EX Australia GARP ETF (ASX: GARP)
This fund is all about finding high-growth companies trading at fair value.
It aims to invest in companies that are delivering a good growth rate for both sales and earnings per share (EPS), trading at appealing price/earnings (P/E) ratios, have low levels of debt for their size and have a high return on equity (ROE).
A high ROE means the company earns a high level of profit for how much shareholder money is retained within the business.
The biggest positions in the portfolio include Berkshire Hathaway, Microsoft, Meta Platforms, Nvidia and Alphabet.
However, there are 250 companies in the portfolio from various sectors and countries. Aside from the US, other countries with a weighting of more than 1% are: Japan, the Netherlands, the UK, Spain, Denmark, Canada, Singapore, Ireland and France. Overall, I like the diversification on offer with this fund.
Impressively, the index that the GARP ETF tracks has delivered an average return per year of 19.5% over the last five years. Of course, past performance is not a guarantee of future performance, particularly a return that is that strong.
VanEck MSCI International Quality ETF (ASX: QUAL)
This ETF is designed to give investors exposure to the highest-quality companies from the global stock market.
There are three criteria that need to be met to enter the QUAL ETF.
First, they need to have a high ROE. As a reminder, that tells investors the company is making a lot of profit compared to how much shareholder money is retained within the business. Re-investment of profit can lead to strong returns on those further retained funds, thanks to the high ROE.
Second, the businesses should display earnings stability. This means profit is consistently rising, making it more likely to be sustainable over the long term.
Finally, businesses in the portfolio have low financial leverage, so they have healthy balance sheets.
For a company to rank well on all three of these elements, you're talking about the best of the best.
There is a total of 300 businesses in the portfolio, with more than 0.5% of the portfolio invested in the following countries: the US, Switzerland, the UK, Japan, the Netherlands, Denmark, France, Germany, Canada, Sweden and Ireland.
Since inception in October 2014, the ASX ETF has returned an average of 15.8%, which is an excellent return over a long time period.
