A few ASX-listed exchange-traded funds (ETFs) really appeal to me because of how their portfolios are created and the types of businesses they're focused on.
I appreciate the exposure to broad share markets that Vanguard Australian Shares Index ETF (ASX: VAS), Vanguard All-World ex-US Shares Index ETF (ASX: VEU) and BetaShares Diversified All Growth ETF (ASX: DHHF). But there are a few specific investments I'd prefer.
It seems 2025 could be a year of elevated volatility amid political change in the United States, with possible tariffs, an uncertain inflation picture and a reduction of expected interest rate cuts.
Which sorts of investments could be good in this environment during 2025 and the long term? I have a few ideas, including the two ASX ETFs below.
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VanEck MSCI International Quality ETF (ASX: QUAL)
It's hard to say which countries or sectors will outperform in 2025, so this fund, with its diversified portfolio of 300 businesses, could be effective.
Let's look at the country allocation to demonstrate its geographic diversification. The QUAL ETF has at least 0.5% invested in several countries, including the US, Switzerland, the United Kingdom, Japan, the Netherlands, Denmark, France, Sweden, Ireland, Canada, and Germany.
How are companies chosen for the portfolio?
There are a few fundamentals that make these businesses in the portfolio among the highest-quality companies in the world.
First, they must have a high return on equity (ROE). That means the companies must generate a high level of profit for the amount of shareholder money that is kept within the business.
Second, these companies must have demonstrated earnings stability. That suggests they rarely see profit decline, so earnings usually are heading upward in the right direction.
Third, the shares within the ASX ETF should have low financial leverage. That means little debt for their size, implying little interest costs and strong balance sheets.
When you put all of these elements together, the ASX ETF offers a strong, quality portfolio that could outperform the broader market, particularly in a downturn.
In the last ten years, it has delivered an average annual return of 15.6%. Past performance is not a guarantee of future performance, but that shows what this ASX ETF is capable of.
VanEck Morningstar Wide Moat ETF (ASX: MOAT)
I also believe that the MOAT ETF could be a good investment for 2025 and beyond. It invests in US businesses with strong economic moats.
An economic moat refers to the company's competitive advantage. What advantages or capabilities does a particular business have to stay ahead of the competition?
Morningstar analysts look to see whether the companies have competitive advantages, such as cost advantages, a leading brand, network effects, patents, licenses, switching costs, or efficient scale.
The analysts decide the business has a wide moat if they believe the competitive advantage will almost certainly last at least 10 years and probably extend to 20 years.
Businesses are only added to the MOAT ETF portfolio if the Morningstar analysts believe the target share is trading at an attractive price to what they believe it's actually worth.
Therefore, the MOAT ETF (currently with 51 holdings) has a high-quality portfolio full of good-value businesses. I think that's a winning combination.
Since its inception in June 2015, this ASX ETF has returned an average of 16.2% per annum. Time will tell what level of return it can achieve this year and over the next ten years.
