ASX-listed exchange-traded funds (ETFs) can be great long-term investments if we choose the right ones.
I already own some ETF units in my portfolio, with VanEck MSCI International Quality ETF (ASX: QUAL) steadily growing in percentage terms of my overall allocation.
I think ASX ETFs are effective for delivering capital growth because of the ETF structure and the types of businesses some funds invest in.
I'm considering two different ETFs as potential additions to my portfolio. They are both focused on international shares and offer appealing potential for capital gains. Let's dive into two of them.
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VanEck Morningstar Wide Moat ETF (ASX: MOAT)
I've admired this ETF for a long time but never invested in it because of the relatively low underlying dividend yield. However, I think there is room in my portfolio for some capital growth options as well, like the MOAT ETF.
It's focused on US shares that have wide economic moats at good prices.
An economic moat is another way of describing the competitive advantages a business has. That could be things like intellectual property, cost advantages or something else that allows the business to make excess profits. To have a wide moat rating, the US share's competitive advantages are expected to last more than 20 years, more likely than not, according to Morningstar analysts.
When you combine those two factors, I think it can lead to strong performance. The ASX ETF's portfolio regularly changes, and its holdings evolve so that there are always good-value, quality businesses in it.
Past performance is not a guarantee of future returns, but in the last five years, the MOAT ETF has returned an average of 14.8% per year.
WCM Quality Global Growth Fund (ASX: WCMQ)
The WCM investment team that manages this fund is based in California, which indicates to me that they're willing to do things differently.
The investment strategy has two main focuses. The first is the moat trajectory. WCM believes the direction of a company's competitive advantage is far more important for driving shareholder returns than the size of the competitive advantage. They want to invest in companies that are "structurally getting better over time."
To identify the moat trajectory, WCM considers the future based on incremental changes rather than a "backward-looking lens focused on static criteria."
The other aspect of the ASX ETF's strategy is looking at the culture of the businesses. WCM says:
We believe culture is the most understudied and underappreciated facet of investing. Culture is a set of norms that shape behavior, rather than simply values on the wall.
We employ a team of dedicated culture research analysts who work in tandem with academics and practitioners.
We have developed a robust framework to evaluate cultures, with a process centered around a proprietary set of questions, increasingly complemented by quantitative data.
In the five years to December 2024, the WCMQ ETF has returned an average of 16.2% per year. Again, past performance is not a guarantee of future performance.
However, both of these funds seem very promising and could provide the sorts of capital gains I hope they might for my portfolio.
