ASX-listed exchange-traded funds (ETFs) can offer investors a lot of benefits if their portfolios are too heavily weighted towards ASX shares.
The ASX share market is a great market, but it only represents a small portion of the global share market. If we don't get exposure to the global share market in some way, we're missing out on a vast array of opportunities.
There are only a handful of sizeable businesses on the ASX that have successfully expanded internationally to unlock significant earnings growth potential from new markets. There are plenty more great companies listed elsewhere.
But, we don't have to try to find all those individual opportunities ourselves. Instead, we could go with an ASX ETF to do the work for us of investing in numerous international shares.
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Excellent options
The three funds I'll mention in this article – though there are plenty of compelling ones to choose from – are Vanguard MSCI Index International Shares ETF (ASX: VGS), Betashares Global Quality Leaders ETF (ASX: QLTY), and VanEck MSCI International Small Cos Quality ETF (ASX: QSML).
I think owning any of these ASX ETFs would be a useful addition.
The VGS ETF owns over 1,000 holdings, including blue chips from various countries, including the US, the UK, Canada, Germany, France, Switzerland, Denmark, Singapore, the Netherlands, and so on. It offers significant diversification because it's a simple way to invest in a large portion of the global share market's market capitalisation into names like Apple, Alphabet, Microsoft, Amazon, and Meta Platforms.
The QLTY ETF has a more refined approach. It owns 150 businesses worldwide. It only invests in businesses that have a high return on equity (ROE), stable (and usually growing) profits, good cash flow, and a low level of debt. By just focusing on great businesses, I think this ASX ETF gives itself a better chance of producing good returns.
Turning to the QSML ETF, it's invested in 150 smaller businesses, which are viewed as quality due to their high ROE, earnings stability, and low financial leverage. Small businesses can be exciting because they usually have a long growth journey ahead until they become large businesses. This gives them the potential to deliver good returns.
Foolish takeaway
Each of these ASX ETFs offers something quite different to the S&P/ASX 300 Index (ASX: XKO), starting with the international earnings exposure. I also believe the ASX ETFs have the ability to outperform the ASX 300 over the longer term, particularly the QSML ETF and the QLTY ETF, because of their quality focus.
If anything, it could be wise to diversify some of our investment money away from the Australian economy because we already (probably) rely on Australia for our earnings from work.
