Exchange-traded funds (ETFs) have really changed the investment world for the better in my opinion.
It allows investors to buy a whole basket of shares in a single trade, saving on brokerage costs and improving diversification.
I think a perfectly good strategy for most investors is simply to choose some of the broadest and cheapest ETFs like iShares S&P 500 ETF (ASX: IVV) and Vanguard MSCI Index International Shares ETF (ASX: VGS).
But I’d like to think I can apply a bit of investment consideration about the ETF choices for my portfolio. That’s why I’m interested in these two ETFs for my portfolio:
BetaShares NASDAQ 100 ETF (ASX: NDQ)
Sadly for Aussie investors, many of the world’s best businesses are not listed on the ASX. But we can buy ETFs to get exposure to them.
This ETF has large exposures to many top businesses like Microsoft, Apple, Alphabet, Facebook, Amazon and so on. They all have very strong economic moats and a lot of the new revenue falls to their bottom lines due to their technology-based operating models, they have strong economies of scale. This helps grow profit at a faster rate over time, providing good investment returns.
It’s hard to know which tech business will do best, so why not buy a slice of all of them for the long-term? I’d much rather own the largest businesses on the NASDAQ than the largest businesses on the ASX.
This ETF has an annual management fee of 0.48%, which isn’t expensive but it’s not the cheapest either.
Vanguard FTSE Asia Ex Japan Shares Index ETF (ASX: VAE)
The US may be the place to find quality blue chips, but Asia could be the place for cheaper large businesses. This ETF is invested in businesses like Tencent, Alibaba, Samsung and Ping An.
The trade war between the US and China has not been kind to the valuations of Asian businesses, even though many countries (such as India) don’t directly have much to do with it. Hong Kong protests also aren’t invoking confidence in the region. Be greedy when others are fearful, as the advice goes.
It’s likely that the Asian economic region will achieve a lot more growth over the next few decades as their middle class gets richer and spends money on ‘middle class’ services like travel, insurance, entertainment and so on.
This ETF has a price/earnings ratio of just over 13x and an underlying earnings growth rate of 10.7%. It’s quite a low PEG ratio for an entire index. The ETF is quite cheap with a price/book ratio of only 1.1x and it’s a seemingly well-performing set of businesses with a return on equity (ROE) of 15.6% for the whole ETF.
As a cherry on top, it has a dividend yield of 2.6%.
I think both of these ETFs have the potential to beat the returns of the ASX All Ords index over the next five to ten years. At the current levels I’d be more inclined to go for the Vanguard Asia ETF because of how good value the price looks for the growth on offer.
Where to invest $1,000 right now
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Motley Fool contributor Tristan Harrison owns shares of VANGUARD FTSE ASIA EX JAPAN SHARES INDEX ETF. The Motley Fool Australia owns shares of and has recommended BETANASDAQ 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.
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