3 reasons why this top ASX ETF is a buy

I think that one of the leading exchange-traded funds (ETFs) on the ASX is Global X S&P World Ex Australia GARP ETF (ASX: GARP).

It's not one of the oldest ETFs on the ASX, but it has such a compelling strategy and process that it has already generated solid returns, provides diversification, and the stocks have high-quality characteristics.

With an annual management cost of just 0.3%, the fees are reasonable given what investors are getting, and the following positives make me think it's one of the best ASX ETFs to own.

High-quality portfolio

The 'GARP' in its name stands for growth at a reasonable price (GARP), which I believe is a compelling strategy that can deliver good returns.

Over time, it's the growing businesses that have the potential to deliver the biggest returns for investors. But we shouldn't buy the growth at any cost – the valuation needs to make sense. That's why the 'ARP' part of the strategy is important; it helps avoid overpaying for those compelling shares.

The ASX ETF identifies growing businesses by looking at the growth rates of sales and earnings over three years.

To decide on whether the business is attractively valued, the investment process looks at the price-earnings (P/E) ratio. Therefore, the fund is nearly always attractively valued, in my view.

To pass the quality requirement to be considered for the portfolio, the GARP ETF looks at the financial leverage of businesses (debt levels compared to their size) and the return on equity (ROE – how much profit they make on retained shareholder money).

When you put those elements together, it's a strong combination for an investment.

Diversified

The potential investments for the portfolio are considered from across the world. This is not just a US-focused ETF. Around two-thirds of the portfolio is invested in US shares, though that's a lower percentage than the allocation to the US in the Vanguard MSCI Index International Shares ETF (ASX: VGS).

Other countries with a weighting of more than 1% include Japan, the Netherlands, Canada, Switzerland, the UK, Israel, Germany, Italy, Hong Kong, Spain, France, Sweden, and Denmark. The ETF provides global diversification.

The portfolio includes 250 businesses, which I think is enough to provide good diversification.

Those 250 businesses are spread across a number of sectors, which is another form of diversification. There are currently five sectors with a double-digit portfolio: financials, IT, communication services, industrials, and healthcare.

Currently, its biggest positions include Microsoft, Eli Lilly, Meta Platforms, Nvidia, Berkshire Hathaway, Alphabet, ASML, and Visa.

Great returns

Past performance is not a guarantee (or reliable indicator) of future returns, but the GARP ETF has performed well since its inception in September 2024.

Between inception and 22 October 2026, the GARP ETF portfolio has returned an average of 14.7% per year.

Without a crystal ball, it's hard to know what the future returns could be, but I believe this ASX ETF can outperform both the global share market and the S&P/ASX 200 Index (ASX: XJO) over the long term.

I'd be happy to add the GARP ETF to my portfolio of ASX growth shares to get local and global growth exposure.

The post 3 reasons why this top ASX ETF is a buy appeared first on The Motley Fool Australia.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended ASML, Alphabet, Berkshire Hathaway, Eli Lilly, Meta Platforms, Microsoft, Nvidia, and Visa. The Motley Fool Australia has recommended ASML, Alphabet, Berkshire Hathaway, Meta Platforms, Microsoft, Nvidia, Vanguard Msci Index International Shares ETF, and Visa. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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