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2 ETFs worth a spot in a diversified portfolio

I think that exchange-traded funds (ETFs) are a great way to add diversification to your portfolio for little effort.

Being able to buy hundreds (or thousands) of shares indirectly with just one trade is a powerful tool for your portfolio.

Many investors have chosen ASX-focused portfolios like Vanguard Australian Shares Index ETF (ASX: VAS) or BetaShares Australia 200 ETF (ASX: A200).

The ASX isn’t a bad choice for income but I think there are better ETFs to find good total returns. Whilst the ASX is weighted towards slow-growth companies I think we will see slow capital growth from ASX ETFs.

I’d much rather buy these ETFs for my portfolio:

BetaShares NASDAQ 100 ETF (ASX: NDQ) 

The best large ‘western’ businesses in the world are clearly Microsoft, Apple, Facebook, Amazon and Alphabet. They have built formidable positions in their markets, they seem virtually impossible to knock down. They can just buy their competition or outspend them if anything new comes along.

They are investing in other areas to expand their businesses further: cloud computing, satellite-powered internet services, streaming services, virtual reality, artificial intelligence, quantum computing.

You can get a high level of exposure to these great businesses with an investment in this ETF. Unless the FAANG shares are broken up I can’t see their growth prospects changing for years to come.

BetaShares FTSE 100 ETF (ASX: F100) 

Ultimately, the only important thing about investing is buying investments at the right price.

UK shares are going through a rough time at the moment due to Brexit, but there are global businesses on the London Stock Exchange that will be as affected as global businesses listed in North American or on mainland Europe. Shares like BP, Royal Dutch Shell, HSBC and so on generate their earnings from across the world, they are not just British businesses.

Yet UK share valuations have been pushed lower in recent times and the dividend yield is up to around 5%. That looks like an attractive combination to me. 

The US isn’t the only place where market giants are listed, it could be a good ‘value’ play to choose UK shares today with Brexit seemingly on track for an orderly exit through an actual deal rather than no deal.

Foolish takeaway

If I were looking for dividends I would go for the FTSE 100 ETF and if capital growth was the goal I’d go for the NASDAQ ETF. I believe both of them are trading at good value considering how low interest rates are.

A portfolio of good ETFs like the ones in this article and these top ASX shares could be a great combination to generate market-beat returns.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BETANASDAQ ETF UNITS. 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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