Sometimes I'm not sure what I'm going to invest in each month because it depends on what looks like good value at the time. However, there are a couple of ASX-listed exchange-traded funds (ETFs) that I know I want to buy more of next year.
As Australians, it's easy for us to have a home bias and just invest in companies listed on the ASX. But, the ASX only accounts for 2% of the global share market.
We'd be missing out if we didn't look at opportunities listed elsewhere. It'd be like trying to find the best students at a large school and only considering one class.
I'm looking forward to buying more of the two ASX ETFs below in 2026, for both the potential returns and the diversification.
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VanEck MSCI International Quality ETF (ASX: QUAL)
Gaining exposure to thousands of businesses isn't necessarily a bad thing, but I think just owning the best ones could help long-term returns.
From what I've seen, the best companies tend to keep winning over time and also generate above-average margins.
The QUAL ETF owns a portfolio of 300 of the highest-quality businesses from around the world. Pleasingly, its holdings come from various markets and industries, ensuring it is properly diversified.
But, the most important thing about the ASX ETF's holdings is how the businesses all rank highly on quality characteristics. Those three elements are a high return on equity (ROE), earnings stability and low financial leverage.
In other words, these companies make a lot of profit based on how much shareholder money is within the business, earnings typically don't go backwards (meaning usually rising) and they haven't used a lot of debt to achieve the high ROE.
We're talking about names like Meta Platforms, Alphabet, Apple, Microsoft, Netflix, Costco and Hong Kong Exchanges & Clearing.
Impressively, the QUAL ETF has returned an average of 15.5% per year over the past five years. I'm not expecting the next five years to be as good, but its strategy could lead to ongoing good returns over the long-term.
VanEck Morningstar Wide Moat ETF (ASX: MOAT)
I like the QUAL ETF as a high-quality fund, though there is a sizeable allocation to the big US tech stocks – there are plenty of other great businesses that are worth having a significant allocation to as well.
The MOAT ETF has a very different holdings list in terms of its biggest exposures such as Applied Materials, Estee Lauder, Huntington Ingalls Industries, Merck & Co and West Pharmaceutical Services.
How did the ASX ETF end up with those positions? It currently has a total of 53 holdings which are all thought of as good value and very competitively advantaged businesses.
Morningstar analysts think an economic moat can come from a few different places: cost advantages, intangible assets (eg patents, brands and regulatory licenses), switching costs, network effects and efficient scale.
Morningstar explains how it analyses a business to decide if it has a wide economic moat:
For a company to earn a wide economic moat, excess normalized returns must, with near certainty, be positive 10 years from now. In addition, excess normalized returns must, more likely than not, be positive 20 years from now.
That process decides which businesses the analysts monitor, but the fund only invests if target companies are "trading at attractive prices relative to Morningstar's estimate of fair value." Great businesses at good value is a strong combination.
Over the prior five years, the MOAT ETF has returned an average of 14.8%. Time will tell how it performs from here, but I'm optimistic the good returns can continue.
