There are a few ASX exchange-traded funds (ETFs) that could help investors feel better about their portfolio while providing long-term protection, and hopefully growth.
It's hard to know what's going to happen next with the ASX share market or global share markets.
But, the answer to the uncertainty could be to own businesses that can continue to perform and excel during difficult times.
It's interesting that during downturns, it can be businesses that are the best in their sector that become even stronger. Sometimes weaker competitors will go out of business, or be acquired by the stronger players. This means the best become even more entrenched in their market position.
The VanEck Morningstar Wide Moat ETF (ASX: MOAT) could be a way to invest in some of the best businesses listed in the United States.
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What is this ETF?
The idea is that it owns a "diversified portfolio of attractively priced US companies with sustainable competitive advantages," according to Morningstar's equity research team.
It's the 'sustainable competitive advantage' part that could make it a more relaxing investment. An economic moat is a "sustainable competitive advantage that allows a company to generate positive economic profits for the benefits of its owners over an extended period".
For the Morningstar analysts, the "durability of economic profits is far more important than magnitude". There must also be clear evidence that the company benefits from at least one of five moat sources. Those five moat sources are: intangible assets, cost advantage, switching costs, network effects and efficient scale.
The only businesses considered for inclusion in this ASX ETF's portfolio are ones where excess normalised returns must, with near certainty, be positive 10 years from now. Also, excess normalised returns must, more likely than not, be positive 20 years from now.
The competitive advantages I refer to above can be things like economies of scale, unique assets, patents, brand power or a monopoly.
So, the businesses in this portfolio are expected to generate strong profits for many years. And they have strong competitive advantages to help them achieve that.
Good value
I like to think this ETF's holdings are nearly always good value. That's because Morningstar analysts only add a business to the portfolio if they think the company is trading at an attractive price relative to Morningstar's estimate of fair value.
But, it is possible for a good value share to fall just as much (if not more) than an expensive one.
However, I think the MOAT ETF has shown by its relatively small decline that it can do well. This ASX ETF has only dropped by 9.4% this year. The Betashares Nasdaq 100 ETF (ASX: NDQ) has dropped 26%. While the Vanguard Australian Shares Index ETF (ASX: VAS) has fallen 15%.
What are some of the holdings right now?
The latest holdings update from the portfolio shows that these were the largest positions: Biogen, Etsy, MercadoLibre, Gilead Sciences, Tyler Technologies, Zimmer Biomet, Wells Fargo, Workday, Masco, Amazon.com, Emerson Electric and Salesforce.
Long-term returns
Past returns shouldn't be used as a predictor of future returns. However, the VanEck Morningstar Wide Moat ETF has returned an average of 14% per annum over the past five years. That's almost 1% better per year than the S&P 500 Index (SP: .INX).
