Aussie investors may be wondering what the best exchange-traded fund (ETF) is to buy for a long-term investment.
There are lots of different options to consider like iShares S&P 500 ETF (ASX: IVV), Vanguard Diversified High Growth Index ETF (ASX: VDHG), Vanguard MSCI Index International Shares ETF (ASX: VGS) and BetaShares Australia 200 ETF (ASX: A200).
Each of the above options has their positives and negatives. The diversified Vanguard ETF makes things easy for investors wanting diversification. But do investors need bonds now, particularly with how low interest rates are?
iShares S&P 500 ETF and BetaShares Australia 200 ETF both offer cheap ways to access the US and Australian share markets. But they offer exposure to just one country's share market.
The Vanguard MSCI Index International Shares option offers good diversification. It owns over 1,500 businesses. It's invested across the world and the management fee is very reasonable for what it does. But the problem is that it's invested in plenty of businesses which are only delivering mediocre performance. That may explain why the returns over the past five years have been pretty disappointing at just 8.2% per annum – much lower than some other ETFs.
My preferred ETF pick is:
BetaShares Global Quality Leaders ETF (ASX: QLTY)
This ETF is invested in 150 high quality businesses from across the world. Yes, around two thirds of the ETF is invested in US shares – but the other third is spread across the world in places like Japan, Switzerland, France, Denmark, Hong Kong, the UK, Spain, Finland and so on.
It's not invested in uninspiring businesses. To get into the holdings list, companies have to have a high return on equity, cash flow generation ability, low leverage and earnings stability. If a business can do well on all of these metrics then its bottom line (and shareholder returns) should hopefully be pretty good.
Returns
BetaShares Global Quality Leaders ETF was created in November 2018, it has produced net returns of 18.8% per annum since then. That sounds good to me considering its global composition. That performance has occurred despite COVID-19 impacts.
Holdings
It's not just full of tech shares. Around a third is IT businesses, but more than a quarter of it is invested in healthcare shares and there is decent representation by industrials, communication services and consumer discretionary too.
So, what shares make it into this ETF's holdings? Some of the largest positions include: Apple, Nvidia, Accenture, Adobe, Facebook, Intuitive Surgical, L'Oreal, Intuit and Cisco Systems.
Costs
You'd probably have to pay at least 1% per annum for an active manager. This ETF costs just 0.35%, which is cheap compared to actively managed funds. The lower the costs the higher the net returns for investors.
Income potential
The dividend yield isn't shabby either. According to BetaShares, the 12-month distribution is 2.5%. That's materially more than the S&P 500 at the moment. Some of the big US tech shares just don't pay dividends.
Other thoughts
I think that BetaShares Global Quality Leaders ETF has the ability to outperform other global benchmark share indices for a very reasonable annual management fee cost.
'Quality' businesses can't always guarantee good shareholder returns. However, the economic advantages that they have could mean the ETF falls less when the share market falls. Indeed, BetaShares says that the fund's index of quality companies has historically exhibited reduced declines during market falls, when compared to the MSCI World Index.
I think I'd sleep better knowing that my portfolio was full of quality businesses rather than lower quality businesses. This ETF has proven to be a good performer. I really like it.
Foolish takeaway
I think BetaShares Global Quality Leaders ETF could be the best ETF to own for the long-term for its focus on strong economic metrics, the global diversification it offers and the low cost.