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.
