Motley Fool Australia

Where I’d invest $25,000 into 3 ETFs


Exchange-traded funds (ETFs) are a great way to grow your wealth over the long-term.

It’s better to hold onto investments for the long-term than constantly shift your investment holdings. With ETFs you are usually investing in a diversified group of shares at a low cost. ETFs are a great way to invest for most people’s portfolios.

If I had $25,000 to invest into three ETFs, these are the ones I’d choose:

BetaShares Global Quality Leaders ETF (ASX: QLTY) – $10,000

Over the longer-term it’s the quality businesses that have the best chance of delivering good returns.

This ETF is invested in global businesses which rank highly on quality metrics. Those metrics are return on equity, debt to capital, cash flow generation ability and earnings stability. If shares display good performance on each of these metrics then it would be hard for them not to produce good returns.

BetaShares provides this ETF for a cost of just 0.35% per annum, which is cheap compared to most fund managers out there. The lower the management fee the more returns that are left in the pocket of investors.

What shares count as high quality? Its top holdings include Nvidia, Adobe, Apple, Accenture, Intuit, Facebook, Vertex, Alphabet and L’Oreal.

It has performed well since inception in November 2018 with net returns of 19.76% per annum. Past performance is definitely not a guarantee of future performance, but it shows how well ‘quality’ can perform even during the COVID-19 pandemic.  

BetaShares Global Sustainability Leaders ETF (ASX: ETHI) – $10,000

Some investors may want to invest with an ethical screening process. It can be a lot of work to try to identify which individual businesses are operating in ways that you agree with. This ETF offers investors a good portfolio of shares that have been through a thorough ethical screening process.

It invests in businesses that have been identified as climate leaders that have also passed screens to exclude companies with significant exposure to fossil fuels or engaged in activities deemed inconsistent with responsible investing. Some examples of exclusions are gambling, tobacco and alcohol businesses.

Which global shares make it into the ETF as ethical? It owns around 200 names. Its top holdings include: Apple, Nvidia, Mastercard, Visa, Adobe, Home Depot, Paypal, Netflix and Toyota.

I think it’s a good sign that Apple, Nvidia and Adobe are three of this ETF’s top holdings because they also qualified as ‘quality’ businesses in the first ETF I mentioned.

Over a third of this ETF (36.3%) is allocated to IT and it has an annual management fee of 0.59%. Those are two pleasing factors that I like to see for potential strong net returns.

The net returns have indeed been very strong. Since inception in January 2017 this ETF has generated a net return of 20.7% per annum.

Investors haven’t sacrificed returns by investing in this ETF.

BetaShares FTSE 100 ETF (ASX: F100) – $5,000

UK shares wouldn’t seem like an obvious place to invest, but I think there are several good reasons to think about businesses on the London Stock Exchange.

With this ETF you get exposure to the 100 biggest companies listed in London. Many of the holdings are global giants with earnings from all over the world. 

Its top 10 holdings are: Astrazeneca, GlaxoSmithKline, HSBC, British American Tobacco, Diageo, BP, Royal Dutch Shell, Rio Tinto, Reckitt Benckiser and Unilever.

The ETF offers good diversification. The main reason I chose it with my theoretical $25,000 money was for the dividend yield. At the end of May 2020 the underlying dividend yield was 5.8%. That’s a solid starting yield from an ETF which has global earnings. The other two ETFs I mentioned don’t have big dividend yields. So this investment would boost a portfolio’s overall year.

Its annual management fee is 0.45%, which isn’t bad at all.

Foolish takeaway

I really like each of these ETFs, particularly the ethical and quality ones. I’d be quite happy for one of those two ETFs to be my only investment because they each own over 100 quality shares. At the current prices I’d probably go for the quality ETF. 

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of February 15th 2021

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