Buy-and-hold investing with ASX shares makes a lot of sense because it allows compounding to work its magic for a long period of time.
Lower turnover means fewer opportunities to lose some of the portfolio value to the ATO because of capital gains tax.
But, I'd only want to own great investments for a long time, not mediocre businesses. I'd expect strong companies to deliver better returns over time thanks to the above-average profit growth.
The two ideas below are high-quality ones that I've bought for my own portfolio and I'm excited about.
TechnologyOne Ltd (ASX: TNE)
The world is rapidly changing in some areas, including AI. Having the right technology for organisational operations is important, which is what TechnologyOne offers. It provides enterprise resource planning (ERP) software to governments, local councils, businesses and universities.
TechnologyOne invests around a quarter of its revenue each year into research and development (R&D), ensuring that it can continue to provide customers with the best (and improving) software. This initiative is also helping the ASX share unlock more revenue from subscribers as they pay for more features.
The company is aiming for a net revenue retention (NRR) of 115%, implying 15% growth of revenue from its existing customer base each year. At that pace, revenue would double in five years.
With the business targeting large addressable markets, such as the UK and education sector, I think it has a very attractive future. This ASX share is a great candidate for a buy and hold strategy. When also considering its rising dividend and growing profit margins, it's a very appealing investment.
According to the forecast on CMC Markets, the TechnologyOne share price is valued at 46x FY27's estimated earnings. In a decade, I'm expecting the company's annual recurring revenue (ARR) to be well over $1 billion.
VanEck MSCI International Quality ETF (ASX: QUAL)
This is one of the exchange-traded funds (ETFs) that I'm putting my long-term retirement money into.
I'm a big believer that Australians should allocate a significant portion of their portfolio to international shares directly or indirectly because of how many great businesses are listed overseas.
But, we don't necessarily need to own a piece of thousands of companies, just the best ones. That's what the QUAL ETF is trying to provide – it owns 300 of the highest-quality global businesses from across various countries and sectors.
There are a few factors that all of the businesses inside of the QUAL ETF need to have. It's this combination of factors that makes them appealing.
Firstly, they must have a high return on equity (ROE). In other words, they make a high level of profit on how much shareholder funds are retained within the business.
Second, they have stable earnings. That means profits aren't going backwards – they're usually going upwards!
Finally, the companies must have low leverage. They should have low levels of debt for their size, making them more sustainable businesses. By utilising this quality-focused strategy, the QUAL ETF has managed to deliver an average return per year of 15.75% over the prior five years, outperforming many ASX shares in that time.
