Exchange-traded funds (ETFs) can be a great way to grow your wealth by investing in shares without thinking about it too much.
But which ETFs would be good to invest in the current market? COVID-19 has made it very difficult to invest. How long will ultra-low interest rates stay this low? The RBA has already cut Australia’s interest rate to 0.25% and said it’s likely to stay like this for a few years. Japan’s interest rate has been low for a very long time. Is Australia headed for the same fate?
I think exchange-traded funds (ETFs) could be a way to invest across a broad group of businesses. This can limit risk with any particular holding. Diversification may be the best defence to get through this difficult period.
I don’t normally invest in ETFs, but I would buy these two for my portfolio:
BetaShares Asia Technology Tigers ETF (ASX: ASIA)
I think Asia is a region that more Aussie investors could look to benefit from. When people invest outside of Australia they typically go for US shares. But Asia also has plenty of quality businesses to consider.
BetaShares Asia Technology Tigers ETF gives exposure to the 50 largest technology and online retail shares in Asia outside of Japan.
Shares like Tencent, Alibaba, Taiwan Semiconductor Manufacturing, Samsung and JD.com have plenty of growth potential. Technology is an exciting industry in Asia just like it is in Australia and the US.
China alone has a population of well over 1 billion, that’s a lot of potential customers or users. Asia is a very big addressable market for businesses that have a good service or product.
Looking at the sector allocation, there are three sectors that have an allocation of more than 20% according to BetaShares. They are: ‘internet and direct marketing retail’, ‘interactive media and services’ and ‘semiconductors’.
Some of the other sectors include ‘technology hardware, storage and peripherals’, ‘interactive home entertainment’, ‘IT consulting and other services’, ‘electronic manufacturing services’ and other allocations that are smaller than 1%.
There is obviously a big exposure to China with this ETF, which may be a positive or a negative depending on your preferences. China makes up 52.8% of the portfolio, Taiwan is allocated the 21.9%, South Korea has an 18.3% allocation, India is allocated 6.5%, Hong Kong has a 0.3% weighting and ‘other’ is 0.2%.
BetaShares Asia Technology Tigers ETF has performed well after fees. Since inception in September 2018 it has returned 17.6% per annum. I think the fees are reasonable at 0.67% per annum.
At the end of May 2020 it had an underlying price/earnings ratio of under 22x. Not bad for how much potential growth there is.
Betashares FTSE 100 ETF (ASX: F100)
I believe the UK share market is another place that Aussie investors could look at. Despite the rivalries, I think there are a lot of similarities between our two countries and the listed businesses. That makes me more comfortable about investing indirectly in UK shares with Betashares FTSE 100 ETF.
Within this ETF’s top holdings are shares that most readers would be aware of. Even if you don’t know the name of the holding company you probably know the brand or products they sell. Some of the largest holdings are: Astrazeneca, GlaxoSmithKline, HSBC, British American Tobacco, Diageo, BP, Royal Dutch Shell, Rio Tinto, Unilever, Reckitt Benckiser, BHP, Vodafone, National Grid and the London Stock Exchange Group.
It has been a tough time for UK shares over the past four years with Brexit, trade wars and now the COVID-19 pandemic. But I think UK shares now represent compelling value.
At the end of May 2020 the ETF had an underlying price/earnings ratio of under 19x and a trailing dividend yield of 5.8%.
The current operating costs of this ETF is 0.45% per annum, which isn’t bad for the global exposure offered from many of the big UK shares.
Currency fluctuations between the Australian dollar and UK pound could have short-term effects on returns. But in UK pound terms, I think UK shares could perform quite strongly from here once the worst of the COVID-19 impacts has passed.
I like both of these ETFs for the international diversification they offer and the potential growth. I’d prefer to invest in the Asian technology ETF because of the advantages that software businesses bring, but there are Chinese risks that could become problematic. The UK share market would probably be a safer bet – the big dividend yield is an attractive bonus.
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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 BetaShares Asia Technology Tigers 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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