2 exotic ETFs I would add to a typical ASX portfolio

Vanguard Emerging Markets Shares ETF (ASX: VGE) is one of my exotic ETFs that I would add to a typical ASX portfolio

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Whilst I think some good solid patriotic bias is a good thing when it comes to investing in shares, Australian's remain statistically overweight (and overexposed) to ASX large cap shares like the banks and miners, both in self-managed superannuation funds and individual portfolios. This throws up a number of problems that could affect such a portfolio down the road – not least vulnerability to the property market and commodity price fluctuations.

So how might one easily and cheaply branch out into more diversified investment areas? I think exchange traded funds (ETFs) are a fantastic solution. ETFs offer a basket of shares that can cover entire sectors in one trade. And (much like the App Store) if you want exposure to almost anything, there's an ETF for that – small companies, sin stocks, cannabis companies, platinum bullion, you name it!

So here are two exotic ASX ETFs that I would consider adding to any ASX portfolio for some diversification

Vanguard Australian Fixed Interest Index ETF (ASX: VAF)

This ETF gives you a portfolio of Australian bonds and fixed interest investments. While VAF will not make you rich overnight (or most likely for many, many years) bonds have traditionally played a defensive role in a portfolio, providing some defensive ballast to counter the volatility that shares inevitably bring. This is because, in times of trouble, investors typically flock out of shares and into bonds – raising their value at a time where shares are likely going the other way. In this way, a bond ETF like VAF can help you sleep a little better at night.

Vanguard FTSE Emerging Markets Shares ETF (ASX: VGE)

This ETF is slightly more exotic option as it invests in stock markets across emerging markets – think China, India, Taiwan, Thailand and Russia (amongst others). Whilst these markets aren't really a 'go-to' for many investors, it's likely that these countries will see significantly higher growth over the next decade and beyond than many developed markets. I think it would be a wise idea to at least investigate broadening one's portfolio into emerging markets and VGE would be a great place to do so.

Foolish Takeaway

If an examination of your own portfolio or super fund finds you wanting some diversification away from Australian large-caps, you may like to consider one of these ETFs. Both would fluff up your portfolio nicely and give you exposure to some markets that most Aussie investors don't go near.

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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