I love ASX-listed exchange-traded funds (ETFs) that can give exposure to businesses that we can't find on the ASX.
It's important to remember that the ASX only accounts for 2% of the global share market. Thus, there are opportunities beyond our shores, including some high-quality companies listed in the US and Europe.
Now, past performance is not a guarantee of future performance, but I'd give the below two picks a great chance of outperforming the S&P/ASX 200 Index (ASX: XJO) over the long term.
VanEck MSCI International Quality ETF (ASX: QUAL)
This fund invests in a global portfolio of 300 companies across a range of countries and sectors.
But, what ties all of these businesses together is that they are ranked as the highest quality names. They all have a high return on equity (ROE), earnings stability and low financial leverage. In other words, they make strong profits, the profit doesn't normally go down substantially, and they have strong balance sheets.
Around three-quarters of the portfolio comes from the US, and a number of other countries have a weighting of at least 1% including Switzerland (5.2%), the UK (3.6%), Japan (3.3%), the Netherlands (3.1%), Denmark (2.9%), France (2.2%), Canada 1.2%) and Sweden (1%).
The position sizing can change, but at the moment the biggest five holdings are: Nvidia, Microsoft, Meta Platforms, Apple and Eli Lilly.
I wouldn't expect recent exceptional performance to continue (it has gained 40% over the past 12 months). In the past five years, the QUAL ETF has returned an average of 17.75% per annum – I believe it can outperform the ASX 200 over the long term, though I expect volatility along the way.
Betashares Global Cybersecurity ETF (ASX: HACK)
This ASX ETF is focused on a particular sector, rather than the whole market.
As the name suggests, it enables Aussies to invest in the global cybersecurity sector, though most of the portfolio (around 80%) is invested in US-listed businesses.
As the world becomes more technological and there's more digital adoption, there becomes a greater need for cyber protection. There are also more cybercriminals wanting to do harm.
For example, in Australia, the ASD Cyber Threat Report 2022-2023 revealed that the average cost of cybercrime per report increased by 14% and the number of cybercrime reports rose by 23% to 94,000. It also answered over 33,000 calls to the Australian cybersecurity hotline, an increase of 32%.
If this is repeated in many countries worldwide, it may suggest that there will be a strong growth rate for cybersecurity companies for years.
Some of the biggest positions in the portfolio include Crowdstrike, Broadcom, Infosys, Cisco Systems and Palo Alto Network.
