Exchange-traded funds (ETFs) are very attractive options for investors looking to ride the compounding wealth effect of shares higher without having to do much work.
One of the not-so-funny things about investing is that to materially outperform the market over the long-term you would have to put in a lot of time, almost full-time hours, to have a chance of outperforming. Unless you’re managing millions of dollars it might not be worth doing all of the research, therefore ETFs could be better.
However, I don’t think the Australian ETFs offer too much diversification. That’s why I think these two ETFs could be good picks:
Vanguard FTSE Asia Ex Japan Shares Index ETF (ASX: VAE)
This is my favourite ETF idea at the moment. This ETF gives exposure to many of the big listed Asian businesses such as Tencent, Samsung and Alibaba. Indeed, it has 890 holdings that are listed in several different countries including China, South Korea, Taiwan, Hong Kong, India, Singapore and so on.
Not only is this ETF attractive to me for Asian economic growth reasons, but on investment metrics it also looks good. According to Vanguard, the ETF has an earnings growth rate of around 12% and a price/earnings ratio of 13.5x. It also has a return on equity ratio of 15.8%. The ETF’s annual management fee is only 0.40%.
iShares S&P 500 ETF (ASX: IVV)
You can’t go wrong over the long-term if you pick a S&P 500 ETF to be your investment choice. Although it’s a US stock market based ETF, the underlying earnings come from across the globe.
I’m sure you have heard of (and use services of) many of this ETF’s top holdings include Microsoft, Apple, Amazon, Facebook, Alphabet, Berkshire Hathaway and Johnson & Johnson.
This ETF comes with a very low annual management fee of 0.04%, which is great over the long-term as it leaves most of the returns in the hands of investors.
I think both of these ETFs will outperform the ASX index over the long-term, but I like the Vanguard Asian ETF more out of the two.
The only issue with these foreign ETFs is that they have low dividend yields. These top ASX shares could provide the right balance of growth and income.
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Motley Fool contributor Tristan Harrison owns shares of VANGUARD FTSE ASIA EX JAPAN SHARES INDEX ETF. The Motley Fool Australia has no position in any of the stocks mentioned. 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.