The ASX exchange-traded fund (ETF) space is excellent for finding high-quality opportunities that I believe could outperform the S&P/ASX 200 Index (ASX: XJO) over the long-term.
The ASX is a great share market, but I think businesses like Commonwealth Bank of Australia (ASX: CBA) and BHP Group Ltd (ASX: BHP) are now such large, mature businesses that they may struggle to deliver huge earnings growth from here.
International businesses seem to have a much better growth outlook, in my opinion.
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VanEck MSCI International Quality ETF (ASX: QUAL)
If I'm going to invest in international shares from the global share market, why not choose a portfolio based on the highest-quality stocks you can find?
There are approximately 300 global businesses inside of this portfolio, with all of them being rated strongly across three quality metrics.
Firstly, they should have a high return on equity (ROE). That means they make a high level of profit for how much shareholder money is retained within the business.
Secondly, they have strong earnings stability. It's compelling if a company's profit rarely goes down. Rising earnings is good for a growing share price!
Third, the QUAL ETF invests only in businesses with low financial leverage. Low debt levels are a sign of a healthy business.
When you put all of those aspects together, you're left with a compelling list of businesses in the ASX ETF, in my opinion. Past performance is not a guarantee of future performance, but this fund has performed strongly.
When great businesses can reinvest retained profits at high returns (high ROE), it makes it very easy to grow earnings and drive valuation higher.
Over the past five years, the QUAL ETF has returned an average of 13.5% per year. That's a great level of return, in my view, and I'm confident about future long-term returns.
WCM Quality Global Growth Fund (ASX: WCMQ)
The other ASX ETF I want to highlight is the WCMQ ETF. This is a fund operated by WCM, a California-based fund manager.
This investment team are also looking for high-quality ideas, with the portfolio owning stocks from across the world. In my view, it's more diversified than the typical global share market indices because only 55% of the portfolio is from the Americas.
WCM is looking for high-quality companies with improving economic moats (competitive advantages) and a corporate culture that fosters improvements to their economic moats.
One of the main benefits of this ASX ETF is its target distribution yield of at least 5%. That's a solid level of passive income compared with many ASX dividend shares.
The distribution income is just part of the overall return, which has been impressive, in my opinion. Of course, past performance is not a guarantee of future returns, but the WCMQ ETF has averaged 13.1% per year (after fees) over the past five years.
