ASX shares and global shares have been punished in 2022. However, I think there are a few quality exchange traded funds (ETFs) that could be effective investments in this environment.
With share prices down so much across a wide variety of sectors, it may be hard to know which opportunity to go for.
ETFs give us the opportunity to buy a whole index, like the S&P/ASX 200 Index (ASX: XJO), or perhaps to increase an allocation to a specific sector or investing style.
'Quality' can mean many different things to different investors. But, if businesses tick multiple boxes, then I believe they have a good chance of doing well over the longer term.
With that in mind, here are two leading quality ETFs that I'd buy in August.
Betashares Global Quality Leaders ETF (ASX: QLTY)
The QLTY ETF looks much more attractive after falling just over 20% in 2022.
As BetaShares says, the ETF is invested in 150 of the world's highest-quality companies.
But how are those businesses judged to be high-quality? There are quality rankings for a few different factors: return on equity, debt to capital, cash flow generation ability, and earnings stability. When you put those four elements together, a business that scores well on all four has a decent chance of producing solid returns.
Despite falling 23.5% over the six months to 30 June 2022, the fund's average return per annum of 8.1% over the prior three years was stronger than the 7.83% per annum return of the MSCI World ex-Australia Index over the same time period.
While there isn't much investment concentration in the fund, with the biggest holding only having a 2.1% weighting, these are some of the biggest allocations: Visa, Accenture, Automatic Data Processing, Cisco Systems, Intel, Johnson & Johnson, Microsoft, Novartis, and Novo Nordisk.
I like the combination of quality and geographic diversification with this ETF. Only 60% of the portfolio is invested in US shares, compared to 70% for the global share market benchmark.
VanEck Morningstar Wide Moat ETF (ASX: MOAT)
This is another quality ETF focused on businesses in the US.
However, there are fewer businesses in this portfolio. On 30 June 2022, there were a total of 50 positions.
Let's look at the ETF's biggest holdings: Kellogg, Veeva Systems, Gilead Sciences, Biogen, Ecolab, Western Union, Polaris, Microsoft, Masco, and 3M.
A key focus of this ETF is on quality US companies that have "sustainable competitive advantages", which can also be described as "wide economic moats".
Competitive advantages can come in a number of different forms including brand power, intellectual property, costs, and so on.
The analysts at Morningstar believe the companies in this quality ETF can maintain their competitive advantages for at least the next decade and perhaps for two decades or more.
The MOAT ETF has outperformed the S&P 500. Since June 2015, the ETF has returned an average of around 14% per annum compared to an average return per annum of 11.8% from the S&P 500.
