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2 cheap ETFs on the ASX for instant portfolio diversification

Like most countries, Aussie investors show a strong home bias, with ASX shares making up most of the average Australian’s investing portfolio. With interest rates being where they are, this has only made the problem worse as investors get out of low-return term deposits to chase dividend yields and franking credits.

However, the ASX only makes up about 2% of the world’s publicly traded companies, so even the S&P/ASX 200 (INDEXASX: XJO) index is not a great door to a diverse portfolio (especially considering our top-heavy banks and mining companies).

Here are two cheap ETFs that can instantly throw some spice into your portfolio by opening it up to some world markets.

iShares Global 100 ETF (ASX: IOO)

This ETF from Blackrock simply tracks the largest 100 companies in the world. It is heavily weighted to the United States (US) (with 64.6% of holdings) but also has exposure to the United Kingdom (UK), Switzerland, France, Germany, and Japan, among others. Top holdings include Microsoft, Apple, Amazon, Nestle and Samsung. I like this ETF because no matter what is happening in the world, these companies are all profit-generating behemoths, and all have earned their place at the top of the world’s markets. IOO provides a yield of 1.93% as well, so you can get some passive income to boot. IOO charges a management fee of 0.40%, which is pretty reasonable in my opinion.

Vanguard FTSE Asia Ex Japan Shares Index ETF (ASX: VAE)

This ETF from Vanguard tracks companies listed in emerging markets, mainly China, India, Taiwan, Brazil and South Africa. Emerging markets are under-represented in most Australian portfolios. This is a shame because emerging markets can provide some high-growth opportunities that may otherwise go under the radar. Some of the fastest growing economies are listed here and their prosperity often moves out of step with the US or Australian sharemarkets – which can give you a hedge against the ASX and NYSE. Some of VAE’s top companies include Tencent Holdings, Alibaba Group and Petroleo Brasilia but the ETF boasts over 4,000 holdings in total. VAE gives a 2.81% yield and currently charges a management fee of 0.48%.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. 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.

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