Exchange-traded funds (ETFs) are a great way to invest into ASX shares.
ETFs allow us to invest in many different businesses at once in a single investment. I think it's an attractive way to passively be invested in the share market and benefit from the long-term capital growth.
ASX shares are a good place to invest. Australia is a good country for businesses to operate in and it's a good base for some mid-cap ASX businesses to launch their global plans from.
So which ETFs are good options to invest into ASX shares? Here are two of the best in my opinion:
BetaShares Australia 200 ETF (ASX: A200)
This is the lowest-costing ETF for ASX share investors. BetaShares offers this ETF for an annual cost of just 0.07% per annum – that's great value. It's even cheaper than the Vanguard ASX option. The lower the costs of an ETF, the higher the net returns.
It aims to track the returns of the S&P/ASX 200 Index (ASX: XJO). That means a sizeable amount of the returns of the ETF are influenced by the ASX's biggest blue chips.
Looking at the latest holdings, BetaShares Australia 200 ETF's biggest exposures are: CSL Limited (ASX: CSL), Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), Wesfarmers Ltd (ASX: WES), Australia and New Zealand Banking Group (ASX: ANZ), Woolworths Group Ltd (ASX: WOW), Macquarie Group Ltd (ASX: MQG) and Transurban Group (ASX: TCL).
The fact that you get exposure to 200 businesses in a single investment is good diversification, although it's not as attractive as other ETFs. When you look at the sector allocation, around half of the ETF is invested in just financial and resource businesses.
However, in normal times – when COVID-19 isn't around – the ASX normally offers an attractively-high dividend yield because banks and miners usually have higher dividend payout ratios than other sectors.
Betashares S&P ASX Australian Technology ETF (ASX: ATEC)
However, what the ASX 200 offers in income, it seems to lose in growth potential. Most ASX blue chip shares have limited growth prospects, but ASX technology shares tend to offer more profit growth potential with higher margins and global growth aspirations.
Software can be replicated for new customers at a very low cost. New revenue tends to come with a higher profit margin, more of it is added to the bottom line.
This ETF gives exposure to many of the ASX's leading technology companies in segments like information technology, consumer electronics, online retail and medical technology.
It was only launched in March 2020, but it has been a strong performer since then. Since 4 March 2020 it has risen in value by 31.8%. The recovery since the COVID-19 crash has been strong. Over the past three months the ETF has produced net returns of 25.2%.
Some of its largest holdings right now are: Afterpay Ltd (ASX: APT), Xero Limited (ASX: XRO), SEEK Limited (ASX: SEK), REA Group Limited (ASX: REA), Nextdc Ltd (ASX: NXT), Carsales.Com Ltd (ASX: CAR), Altium Limited (ASX: ALU), Appen Ltd (ASX: APX) and WiseTech Global Ltd (ASX: WTC).
Many of the above names are leaders in their industries and are among the best businesses on the ASX.
This ETF's annual management fee, at 0.48% per annum, is more than BetaShares Australia 200 ETF. But the most important number for investors is the net return figure, not the annual cost figure. The Betashares S&P ASX Australian Technology ETF return has been strong so far, which has been driven by its biggest position – Afterpay.
Foolish takeaway
Both of these ETFs are good investment options for ASX investors to consider. If you want to get the cheapest ETF to track the ASX 200, then you could go for the one I have written about in this article. However, for medium-to-long-term growth I think the Betashares S&P ASX Australian Technology one will be the better performer because of the underlying investments.
