There is a lot of uncertainty at the moment, with what could happen with inflation, tariffs, economic growth, AI and geopolitics. Which companies can succeed in this environment? I think the ASX-listed exchange-traded fund (ETF) Betashares Global Quality Leaders ETF (ASX: QLTY) can be a good answer.
Without a crystal ball, it's hard to know what's going to happen next. So, it could be a good idea to invest in a group of high-quality businesses that may be able to succeed under most circumstances.
I think most Australian investors would benefit by having exposure to the global share market, which the QLTY ETF can provide. The Australian economy is a good place to be invested, but the global economy has a great number of appealing opportunities that we can take advantage of too.
There are a few elements that make me believe the fund has a strong outlook.
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High-quality metrics
This ASX ETF is not just a random assortment of international businesses, but it has been purposefully filled with the highest-quality companies in the world.
There are four metrics that a business must have to enter this portfolio, rather than just one or two.
First, it must have high return on equity (ROE). That means the business must generate pleasing profits for how much shareholder money is retained within the company. It also suggests the business can generate good returns on future retained profit invested within the business.
Second, the business should display earnings stability. To me, if the profit isn't going backwards then that means earnings are regularly rising, which is a good tailwind for share prices.
Third, the businesses must generate strong cash flow. That means the business is generating 'real' profits which hit the bank account, not just accounting profits.
Fourth, the businesses have a low level of debt for their size. I think that makes them more sustainable (and profitable) compared to heavily indebted companies.
Diversification
The ASX ETF owns 150 businesses from a variety of countries, which I think is useful for lowering risks without necessarily lowering the potential returns. The countries with a weighting of at least 0.9% include the US, Japan, Switzerland, France, the Netherlands, Hong Kong, Spain, Sweden and the UK.
It's also diversified across different sectors. I like that there are multiple sectors with a double-digit weighting in percentage terms. Those industries include: IT, industrials, financials and healthcare.
Some of the biggest businesses in the portfolio are currently Arista Networks, Lam Research, Amphenol and Alphabet. But, they do not have large positions in the portfolio, so I don't think there is any particular risk of being overexposed if one or two businesses go bad.
Reasonable fees
Some investment funds focused on finding quality businesses may charge a lot in investment fees, which significantly hurts the net returns.
Considering how much research goes into creating and maintaining this portfolio, I think its annual management fee of 0.35% is very reasonable.
This has helped the ASX ETF deliver an average return per year of 13.3% over the last five years. Past performance is not a guarantee of future performance, but I think the QLTY ETF is set to perform well over the long-term.
