I believe certain ASX exchange-traded funds (ETFs) can produce strong returns next year and in the longer term.
Particular ETFs can expose us to specific industries or investment styles—I'm going to discuss one ETF for each strategy.
Very few ASX shares give exposure to the types of trends or themes that I'm about to outline, so I'd say they are effective tools for diversification.
Let's get into these two ASX ETF ideas.
This fund idea aims to provide investors access to global cybersecurity companies, from the giants to the emerging players.
According to the United States Agency for International Development (USAID), the global cybercrime cost was estimated at over US$8 trillion in 2023. In 2019, 300 global CEOs said the lack of cybersecurity was the single greatest threat to the global economy over the next decade. With a worrying projection, USAID said:
And cybercrime is expected to continue to grow unabated over the coming years, with projections as high as $23.84 trillion by 2027.
Cybersecurity is essential for businesses and governments to keep their customers and citizens safe. There are many services that require a high level of cybersecurity, such as e-commerce transactions, banking, taxation, birth certificates, medical records and so on.
With the importance of cybersecurity, I think this ETF provides exposure to companies with both potentially defensive and growing earnings. We'll need cybersecurity regardless of what happens economically in 2025.
It's not surprising to me that the fund has returned an average annual return of 17% over the past five years, though past performance is not a reliable indicator of future performance.
The MOAT ETF is one of my favourite ETFs because it combines investing in high-quality US businesses at appealing prices.
Morningstar analysts identify potential businesses for the investment watchlist by finding companies with sustainable competitive advantages, which can also be called wide economic moats.
A competitive advantage could be a patent, intellectual property, a regulatory license, owning a leading brand, having cost advantages, or network effects. Morningstar is looking for businesses where there's a good chance the advantage will last for at least 20 years.
With that watchlist of strong businesses, the MOAT ETF only invests in companies trading at attractive prices compared to what Morningstar thinks they're worth.
According to VanEck, the provider of this ASX ETF, this fund returned an average of 14.5% over the five years to 30 November 2024, which I think is a strong return. While there's no guarantee the next five years will be as good, thanks to its investment strategy, I think this fund can continue performing pleasingly.
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