Gift giving is an integral part of the festive season. Gifts can demonstrate our affection for those we are closest to and the right gift can keep giving for many Christmases to come.
Here we take a look at why ETFs make great Christmas gifts.
ETFs as gifts
Too often we give and receive gifts that we forget by next Christmas. Our gifts are frequently short term in nature, destined for landfill. But we can give gifts that will give benefits for years to come. By giving the gift of an ETF, you give the recipient the opportunity to receive distributions indefinitely and to benefit from potential capital growth.
ETFs may be intangible, but they confer valuable rights on the holder. ETFs are traded on the ASX like ordinary shares. They generally hold a basket of securities that investors in the ETF gain exposure to. ETFs now exist which provide coverage of virtually every major asset class, commodity, and currency. Further, structured ETFs exist to pursue particular investment strategies and styles.
Holding multiple securities means ETFs come with inbuilt diversification. This provides a degree of protection against unsystematic risks, lowering volatility. ETFs can therefore provide a quick and easy method of portfolio diversification.
A broad range of ETFs are traded on the ASX that are designed to give exposure to everything from corporate bonds to technology shares. These can be used to complement existing portfolio holdings or align with personal values and interests.
ETFs can make a valuable gift for children where possible. They provide the opportunity to teach children about the time value of money and other fundamental investment tenants, and children also have a longer period to hold investments and thus ride out volatility in the market. For example, if a child is gifted $1,000 of in ETFs each Christmas from age 1, which grow at 8% per annum, they will have $37,450 by age 18.
Some gift recipients may have an idea about a particular ETF they are interested in. Others may be happy with your choice. Given the broad range of available ETFs, an ETF can generally be found to fit the tastes and values of the recipient. Here are 6 ETFs that make great Christmas gifts.
For the beginner investor
The Vanguard Australian Shares Index ETF (ASX: VAS) tracks the return of the ASX 300 before taking into account fees, expenses, and tax. The ETF returned 19.36% in the year to 31 October 2019. Management fees are 0.10% and distributions are made quarterly.
The ETF held 303 securities as at 31 October. Top holdings were Commonwealth Bank of Australia (ASX: CBA), CSL Limited (ASX: CSL), BHP Group Ltd (ASX: BHP), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Woolworths Group Limited (ASX: WOW).
For the yield investor
The ETFS S&P/ASX 300 High Yield Plus ETF (ASX: ZYAU) offers exposure to ~40 stocks from the ASX 300 with the highest shareholder yields that meet certain quality and liquidity requirements. The ETF returned 13.61% in the year to 31 October. Management fees are 0.35% per annum and distributions are made quarterly.
Top holdings include Wesfarmers Ltd (ASX: WES) (10.13%), Westpac (9.78%), ANZ (9.73%), Transurban Group Ltd (ASX: TCL) (9.63%), Woodside Petroleum Limited (ASX: WPL) (9.14%), Qantas Airways Ltd (ASX: QAN) (5.50%), South32 Ltd (ASX: S32) (5.23%), and Scentre Group (ASX: SCG) (5.08%).
For the international investor
The iShare Core MSCI World All Cap ETF (ASX: IWLD) provides exposure to a broad range of developed market companies around the world. The ETF tracks the MSCI World Investable Market Index, before fees and expenses. The fund returned 15% to 31 October 2019. Management fees are 0.09% per annum and distributions are made twice yearly.
Top holdings include Microsoft (2.41%), Apple (2.33%), Amazon.com (1.61%), Facebook Class A (1.01%), Berkshire Hathaway Class B (0.92%), JPMorgan Chase & Co (0.88%), Alphabet Class C (0.84%), Alphabet Class A (0.83%), and Johnson & Johnson (0.77%).
For the ethical investor
The Betashares Australian Sustainability Leaders ETF (ASX: FAIR) provides exposure to a portfolio of companies screened to preference businesses engaged in sustainable business practices and avoid those engaged in activities deemed inconsistent with responsible investment considerations. The ETF returned 22.15% in the year to 31 October. Management costs are 0.49% per annum and distributions are made twice annually.
Top holdings include CSL Limited (4.6%), Resmed Inc (ASX: RMD) (4.3%), Suncorp Group Ltd (ASX: SUN) (3.9%), Sonic Healthcare Ltd (ASX: SHL) (3.8%), Brambles Limited (ASX: BXB) (3.8%), Insurance Australia Group Ltd (ASX: IAG) (3.8%), Cochlear Limited (ASX: COH) (3.7%) and Telstra Corporation Ltd (ASX: TLS) (3.7%).
For the tech investor
The Betashares NASDAQ 100 ETF (ASX: NDQ) provides exposure to the 100 largest non-financial securities listed on the NASDAQ stock market, by market capitalisation. The ETF tracks the performance of the NASDAQ-100 Index, before fees and expenses. The fund returned 19.90% in the year to 31 October. Management costs are 0.48% per annum and distributions are made twice yearly.
Top holdings include Apple (12.1%), Microsoft (11.6%), Amazon.com (9.0%), Alphabet (8.6%) Facebook (4.9%), Intel (2.9%), Comcast (2.2%), Cisco Systems (2.1%) and Pepsico (2.1%).
For the property investor
The Vanguard Australian Property Securities Index ETF (ASX: VAP) provides exposure to property securities listed on the ASX. Property sectors the ETF invests in include retail, office, industrial and diversified. The ETF tracks the return of the S&P/ASX 300 A-REIT Index before taking into account fees, expenses and tax. The fund returned 21.90% in the year to 31 October. Management fees are 0.23% per annum and distributions are made quarterly.
Top holdings include Goodman Group (ASX: GMG) (17.28%), Scentre Group (15.28%), Dexus Property Group (ASX: DXS) (9.72%), Mirvac Group (ASX: MGR) (9.52%), Stockland Corporation Ltd (ASX: SGP) (8.92%), GPT Group (ASX: GPT) (8.59%), Vicinity Centres (ASX: VCX) (6.43%), and Charter Hall Group (ASX: CHC) (3.92%).
An unexpected and thoughtful gift, ETFs show that you are thinking about someone’s future. The range of ETFs available on the ASX means it is easy to find one that matches your recipient’s values and interests, or even one that matches your own.
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Motley Fool contributor Kate O'Brien 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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