ASX-listed exchange-traded funds (ETFs) can be some of the best ways to invest with how they can provide diversification and good returns in just one investment.
There are a wide variety of ASX ETFs we can choose to invest in, such as the Vanguard MSCI Index International Shares ETF (ASX: VGS) and the Betashares Diversified All Growth ETF (ASX: DHHF). They are very effective investments.
Over the long term, I think investing in quality businesses is likely to deliver good returns thanks to strong profit margins, regular profit growth, and financial health. That's why I like the idea of the following ASX ETFs with a $10,000 investment (or more).
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VanEck MSCI International Quality ETF (ASX: QUAL)
QUAL ETF is a fund that invests in around 300 businesses from across the global stock market, from various industries.
The fund only chooses companies if they are deemed one of the highest-quality businesses in the world. There are three factors that the fund looks for.
First, a high return on equity (ROE). That tells us how much profit the business is making compared to how much shareholder money is retained within the company. It also implies how much of a return a company could make on future additional retained earnings.
Second, the businesses have earnings stability. If profits aren't going backwards, then it means earnings are rising. Growing profit is a strong driver of rising share prices and could also mean the company falls less during a recession.
Third, the amount of debt a business has. I think it's a good sign of business health if it has low debt levels.
Over the past decade, the QUAL ETF portfolio has returned an average of 15.4% per year, though past performance is not a guarantee of future performance.
VanEck Morningstar Wide Moat AUD ETF (ASX: MOAT)
The second fund is a bit of a stock picker's fund. This ASX ETF aims to give investors exposure to a diversified portfolio of attractively priced US companies with sustainable competitive advantages according to Morningstar's equity research team.
An economic moat is what enables a business to stay ahead of competitors, which could be in the realm of brand power, intellectual property, network effects, cost advantages, and so on.
To earn a 'wide moat' rating from Morningstar, the analysts think that the business' economic moat will almost certainly endure for the next decade and more likely than not endure for the next two decades.
On top of that, the fund only invests in these businesses when it thinks they're good value compared to what Morningstar thinks they're worth. Over the past decade, the MOAT ETF has returned an average of 14.3%.
Betashares Global Quality Leaders ETF (ASX: QLTY)
The third ASX ETF I'd split my $10,000 between is the QLTY ETF, which looks to invest in 150 high-quality global companies, which come from various markets and industries.
There are four factors that decide whether a business ranks high enough to enter the portfolio. Return on equity, debt-to-capital, cash flow generation ability, and earnings stability.
ROE, debt, and earnings stability are the same as I mentioned with the QUAL ETF. Cash flow generation is also a good factor to see because it means accounting profits are turning into real money flowing through the bank account.
Its portfolio and weightings are different to the QUAL ETF, so I think both ASX ETFs can work in a portfolio together to provide different exposure.
The index that this fund tracks has returned an average of 14.7% per year over the past decade.
