Many investors are beginning to add some conservative or defensive assets to their portfolios, which (in my opinion) can be a very good idea, especially with markets approaching all-time highs. I also believe that exchange traded funds (ETFs) are a much-overlooked investment vehicle for those wanting to put some sandbags around their capital. Although market-tracking ETFs like the Vanguard Australian Shares Index ETF (ASX: VAS) or iShares S&P 500 ETF (ASX: IVV) can be a great long-term investment, these ETFs are also highly vulnerable to a stock market crash.
You can also buy non-market-tracking ETFs however, many of which have a defensive thematic. Here are 2 exotic ASX ETFs, both following a defensive methodology over a market-tracking algorithm.
VanEck Vectors Wide Moat ETF (ASX: MOAT)
MOAT is one of my favourite ETFs available on the ASX. It tracks a list of ‘wide moat’ US companies that is published by Morningstar, which defines a ‘wide moat’ as an intrinsic competitive advantage that a company may possess – think of Apple and its (wildly popular, wildly expensive) iPhone. MOAT invests in 52 companies that Morningstar concludes have similar characteristics. These companies all have branding or pricing characteristics that lend a defensive nature to the stocks and this ETF. Some of its current top holdings include Kelloggs, Amazon, Intel and Philip Morris. MOAT currently has a trailing yield of 2.1% and has a management fee on 0.49%.
SPDR MSCI Australia Select High Dividend Yield Fund (ASX: SYI)
SYI is an ETF that selects only the highest-yielding shares on the ASX. Dividends are one of our best defences against market crashes as they help to insulate a portfolio against capital losses – even if the markets are melting, you can expect a healthy dividend to keep rolling in from SYI. This ETF pays its dividend quarterly and currently has 41 holdings, including National Australia Bank Ltd. (ASX: NAB), Wesfarmers Ltd (ASX: WES) and Sydney Airport Holdings Pty Ltd (ASX: SYD). SYI has a trailing yield of 5.68%(plus some franking credits) and charges a management fee of 0.35%.
Both of these ETFs are good defensive-but-exotic options that you might want to consider adding to your portfolio if you are looking for a safer place to have your cash. Both have strong solid companies in their weightings, and both have relatively low management fees.
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Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited and VanEck Vectors Morningstar Wide Moat ETF. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Wesfarmers Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. The Motley Fool Australia has recommended VanEck Vectors Morningstar Wide Moat 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.