Insights

2 high-quality ETFs to buy for any portfolio

These 2 quality exchange-traded funds (ETFs) would be good to buy for a portfolio including Betashares Global Quality Leaders ETF (ASX:QLTY).
The post 2 high-quality ETFs to buy for any portfolio appeared first on Motley Fool Australia. –

ETF

I think there are some high-quality exchange traded funds (ETFs) that could make good investments for any portfolio.

There are plenty of ETFs out there. But I think country-specific ones like Vanguard Australian Shares Index ETF (ASX: VAS) miss out on other great global businesses. The industry-specific ones like Betashares Global Cybersecurity ETF (ASX: HACK) are good if you find ones that give exposure to the right industry.

But the below two ETFs offer almost everything you could want in my opinion:

Betashares Global Quality Leaders ETF (ASX: QLTY)

As the name may suggest, this ETF looks to give Aussies exposure to global, quality businesses.

What does ‘quality’ mean? To make it into this ETF’s holdings it has to rank on return on equity (ROE), debt to capital, cashflow generation ability and earnings stability.

This combination of useful factors combines into a very strong portfolio in my opinion.

It owns 150 quality businesses from across the world. Just under a third of them are IT businesses, with just over a quarter being healthcare. Other investments are in the sectors of industrials, communication services, consumer discretionary, financials and consumer staples.

Whilst almost two thirds are headquartered in the US, it’s important to remember that many of those American companies generate earnings from right across the world. Other countries with an allocation of more than 2.5% are: Japan, Switzerland, Denmark and France.

I’m sure you want to know what some of the biggest positions are, here are the largest 10: Keyence, Nvidia, Intel, Nike, Novo Nordisk, Texas Instruments, Apple, Adobe, Intuit and Intuitive Surgical.

This ETF has an annual management fee of 0.35% per annum. It has performed really well for investors since inception in November 2018, returning 19.6% per annum after fees.

BetaShares Global Sustainability Leaders ETF (ASX: ETHI)

Many investors may think that investing in ‘ethical’ businesses may mean that you’re sacrificing returns. But that isn’t the case with this ETF.

Since inception in January 2017, BetaShares Global Sustainability Leaders ETF has delivered returns of 20.9% per annum. That’s after the annual management fees of 0.59% per annum, which is very cheap compared to active managers who give access to an ‘ethical’ investment style.

The problem with investing ethically is that everyone has different thoughts of what counts as ethical. Some people may be fine with junk food but not gambling. Alcohol may be okay for some investors, but not oil or coal companies.

I think this ETF provides a strong level of ethical screening, whilst providing it for an attractively low price.

BetaShares Global Sustainability Leaders ETF excludes things like gambling, tobacco, armaments, uranium and nuclear energy, alcohol, junk food, pornography, human rights and supply chain concerns and so on.

It particularly aims to invest in businesses that are ‘climate leaders’, meaning ones that are carbon efficient. That means they’re in the top third of their respective industry or are otherwise good performers in relation to scope 4 carbon emissions.

Which businesses pass this pretty stringent list of criteria? These are the top 10 holdings: Apple, Nvidia, Mastercard, Home Depot, Visa, Adobe, Tesla, PayPal, Netflix and Toyota.

Almost 40% of the ETF is invested in IT businesses, so it has a high allocation to a high-growth, high-margin sector. Healthcare is the second biggest allocation with a 15% position.

About 28% of the ETF isn’t invested in US-listed businesses, so it offers substantial global diversification for Aussies. It owns 200 businesses overall. 

I think this shows that ethical investing can generate really strong investment returns if you’re invested in really good businesses.

Foolish takeaway

I’d be happy to buy both of these ETFs for my portfolio. I think both of them can keep performing over the long-term.

But I’m also looking at other ASX share opportunities at the moment.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of BETA CYBER ETF UNITS. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post 2 high-quality ETFs to buy for any portfolio appeared first on Motley Fool Australia.

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