I believe ASX shares have great potential to deliver good returns in the coming decade. I think the best strategy with top-quality investments is to buy and hold them.
Holding for the sake of holding isn't the most compelling strategy to me. I'd only want to buy things that I believe have the ability to deliver pleasing compounding. Financial numbers can become surprisingly large after five years of growth.
With a long-term strategy in mind, the two ideas below look really compelling to me.
Wesfarmers Ltd (ASX: WES)
This ASX share may be one of the highest-quality companies on the ASX to buy and hold, with retailers like Bunnings, Kmart, and Officeworks. It also has an industrial unit, a healthcare unit, and a chemicals, energy and fertiliser (WesCEF) division.
Bunnings Group and Kmart Group are key for the company. In the HY25 result, Bunnings Group made $1.3 billion in earnings, and Kmart Group generated $644 million in earnings. Looking at the next two most profitable divisions after that, WesCEF made $177 million in earnings and Officeworks generated $87 million in earnings. The big two businesses are essential.
Pleasingly, in HY25, Bunnings Group had a 71.5% return on capital (ROC) and Kmart Group had a ROC of 65.9%. Wesfarmers as a whole had a return on equity (ROE) of 31.2%. Those numbers say to me that Wesfarmers is high-quality and can generate strong returns on retained profit within the business.
The business is putting its retained earnings to good use. I'm excited by the company's efforts to deliver Anko stores in the Philippines and sell certain Anko products into North America.
The Wesfarmers share price is not cheap after rising 20% in a year. But, I think it's an excellent candidate for a buy-and-hold strategy thanks to its quality and ongoing growth initiatives, which could help the ASX share's profit increase significantly in a decade from now.
VanEck Morningstar Wide Moat ETF (ASX: MOAT)
I think the MOAT ETF is one of the best exchange-traded funds (ETFs) for long-term investing because that's how it invests itself.
There are two key elements to the strategy of this fund.
First, it looks for businesses it believes are more likely than not to be generating strong profits in two decades from now. These businesses are expected by the broker to almost certainly be making good profits in a decade from now.
A key part of that belief by Morningstar analysts is the strength of the economic moat that these businesses have. In other words, these companies have strong competitive advantages that allow them to earn good profit margins while staving off competition.
But this fund doesn't just buy and hold high-quality businesses at any price. The MOAT ETF only invests if analysts think the quality company is trading attractively below a fair price.
This winning combination has allowed it to generate a net return of almost 15% per year since its inception in June 2015. I'm calling this an excellent buy and hold ASX share because we can invest in it on the ASX.
