Exchange-traded funds (ETFs) seem to be the best thing since sliced bread at the moment. Easy access through the stock exchange, diversification, usually offering low costs. What’s not to like?
There are a wide range of ETFs out there, some that focus on huge numbers of businesses and others that give access to a specific sector or asset class.
Unless you choose extremely diverse ETFs such as Vanguard MSCI Index International Shares ETF (ASX: VGS) I think it’s better to choose ETFs you think can beat the ASX Index, or else you may as well just stick to Australia.
So, with beating the ASX in mind, here are three ETF ideas:
Vanguard US Total Market Shares Index ETF (ASX: VTS)
This ETF gives the investor exposure to over 3,600 businesses listed in the US. Many of the larger holdings are actually global businesses, so you’re getting global diversification with this ETF, not just a US-focused one.
It has a very low cost of 0.04% per annum of management fees, which is one of the lowest in the world.
Its top holdings include all of the best shares in the US such as Apple, Microsoft, Amazon, Alphabet (Google), Facebook, JPMorgan Chase and Berkshire Hathaway.
I think it would be possible to own just this ETF as your portfolio, however it wouldn’t provide much income.
BetaShares Global Agriculture ETF (ASX: FOOD)
BetaShares offers a variety of ETFs that specialise on specific sectors. This ETF provides exposure to some of the world’s largest food businesses such as Archer Daniels Midland, Deere & Co and Kubota.
Some food experts believe that the world will face a food shortage by 2030, meaning all food-related businesses could get an earnings boost by then. Increasing food productivity is always a valuable development and some of this ETF’s top holdings operate in that space.
Betashares Global Cybersecurity ETF (ASX: HACK)
Another sector that could grow faster than the general economy in the coming years are companies focused on supplying cybersecurity services. We live in a new world where anyone with a decent computer can cause problems to governments and businesses.
Therefore, those businesses will pay what it takes to keep people’s details and intellectual property safe. Some of its top holdings include Splunk, VMware, Palo Alto Networks, Cisco Systems and Symantec.
ETFs can be a very easy way to get good diversification and good returns for little effort. At the current prices if I could only choose one ETF I would probably go for the FOOD ETF as I think the other two are more likely to be affected by rising interest rates in the next couple of years.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of BETA CYBER ETF UNITS. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.