I love investing in assets that can grow my wealth. Some ASX shares and ASX-listed exchange-traded funds (ETFs) have generated great returns. I'm optimistic about strong returns from a particular fund: the Global X S&P World EX Australia GARP ETF (ASX: GARP).
It's a relatively new fund, with an inception date of 24 September 2024, but the index it tracks has been around for longer.
When I consider what factors I'd like to see in the businesses that make up an ASX ETF's portfolio, the GARP ETF seems to offer everything I'm looking for. Let's look at the five elements that make this so appealing.
For any business to be considered for this portfolio, it needs to display a number of characteristics.
The first factor I'll mention is that it needs to deliver both sales (revenue) and earnings growth. I think this is key because that's usually what drives share prices higher over time.
There are a number of ways to measure quality, but two of the most important are usually debt and return on equity (ROE).
It's a good sign when a business can achieve success with low levels of debt. This also suggests they're in a financially healthy position.
Meanwhile, a good ROE means the business is making a high level of profit for how much shareholder money is retained within the business. It also suggests they can reinvest newly-generated profit for a high return, justifying further share price growth.
We don't want to pay too much for growth businesses. This fund aims to identify businesses that deliver growth at a reasonable price.
It looks for value by analysing the price/earnings (P/E) ratio of these businesses, while noting the earnings growth and quality.
Essentially, the ASX ETF aims to identify attractive businesses with a good PEG ratio – are the earnings growing at an appealing pace for their valuation?
This fund aims to have 250 holdings, which is a very good level of diversification, in my opinion.
These businesses come from a number of countries, including the US, Japan, France, the Netherlands, the UK, Canada, Spain, Israel, Italy, Singapore, Germany, Switzerland, Denmark and more.
On the sector side of things, there are six industries with a double-digit weighting, including financials, IT, energy, communication services, industrials and consumer discretionary. I like seeing that the holdings are spread across a number of areas.
I think this fund ticks the diversification box on a number of fronts.
Considering the amount of research and effort that goes into creating this portfolio, I think the annual management costs are pleasing.
It has an annual management fee of just 0.30%, which I think is very reasonable considering the index this fund tracks has returned an average of 19.6% per year over the last five years. Though, past performance is not a guarantee of future returns, of course.
I expect to invest in this fund later this year.
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