There are some quality exchange-traded funds (ETFs) that I’d buy for my portfolio.
I think ETFs are a good choice for people who have little interest in researching shares and want diversification.
However, I think ASX ETFs like Vanguard Australian Shares Index ETF (ASX: VAS) are too heavily invested in ASX banks (and miners).
But these quality ETFs are attractive to me:
Vanguard FTSE Asia ex Japan Shares Index ETF (ASX: VAE)
Vanguard is a world-leading provider of low-cost ETFs. Vanguard’s owners are its investors – Vanguard shares the profit by lowering costs as low as possible.
This particular ETF is invested in Asian shares. It’s actually invested in over 1,300 Asian shares. That’s a lot of diversification in from one ETF. But it does offer exposure to big businesses like Alibaba, Tencent, Taiwan Semiconductor Manufacturing, Samsung, AIA, Meituan Dianping, China Construction Bank, Reliance Industries, Ping An Insurance and Hong Kong Exchanges & Clearing.
The management fee is 0.40% per annum, which is pretty cheap as an investor in Asian shares.
The benefit of investing in Asia is that the region is growing much faster economically than other regions. More wealth for citizens should translate into long-term performance of the businesses located there. Particularly ones that provide middle class services like insurance, travel, entertainment and so on.
However, investors may not want too much of an exposure to this ETF if you’re worried about China-related risks.
Betashares FTSE 100 ETF (ASX: F100)
The UK share market has suffered during COVID-19 just like other share markets around the world. This ETF is invested in the 100 largest businesses on the London Stock Exchange. I think 100 holdings is enough to provide very good diversification
The FTSE is somewhat like the ASX, it even has Rio Tinto among its biggest holdings. I actually like the diversification offered by the FTSE 100 more than the ASX 100. The ASX is too focused on banks and miners in my opinion.
These are some of this ETF’s biggest holdings: Astrazeneca (pharmaceutical), GlaxoSmithKline (pharmaceutical), HSBC (global bank), Diageo (global alcohol company), British American Tobacco, BP (energy), Unilever (global consumer products), Royal Dutch Shell (energy) and Reckitt Benckiser (global consumer products).
So don’t think of this as a UK economy ETF, it is largely international businesses which happen to be listed on the London Stock Exchange.
The UK share market has had a tough few years due to Brexit. But I think it could rebound quite hard after COVID-19 subsides.
One bonus with this ETF is the dividend yield. This year’s dividends will be reduced because of the economic impacts, but in normal years it may pay a pretty good dividend. Even now it offers a dividend yield of around 4.4%.
BetaShares charges 0.45% per annum for this investment option.
Betashares Global Sustainability Leaders ETF (ASX: ETHI)
‘Ethical’ investing could mean different things to different people. Some ethical options just exclude things like weapons manufacturers. Others may exclude gambling. Do oil companies count as unethical?
This ETF invests in businesses which are described as ‘climate leaders’. It excludes the industries I mentioned and more. Also excluded are: uranium and nuclear energy, alcohol, junk food, pornography, a material level of exposure to the destruction of valuable environments, human rights and supply chain concerns and lack of board diversity.
You may think that excluding that many different companies may reduce returns. But it hasn’t. The ETF was launched in January 2017. It has returned an average of 20.7% per annum (after fees) since inception to 30 June 2020. Over the past year it has returned 26.37%. I think that’s great.
I’m sure you’re interested about what shares make it into this ethical line-up, yet can make such good returns. Its top 10 holdings are: Apple, Mastercard, Visa, Nvidia, Home Depot, Adobe, PayPal, Toyota, Netflix and ASML.
I think that’s a high quality list of names that is pretty diversified. They’re leaders in their respective industries. I believe they could be long-term performers.
Ethical doesn’t have to mean lower returns. Indeed, it seems to have produced strong returns. The ETF owns around 200 businesses, so it also offers very good diversification.
I like all three of these ETFs. For income investors I’d go for the UK ETF and for growth I’d go for the ethical ETF. I think they could be long-term holdings for your portfolio.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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