There are some exchange-traded funds (ETFs) that may be quality ideas for some investors to look into.
ETFs are often investments that give exposure to a diversified group of businesses, in a single trade. Many ETFs also have lower fees than a typical active fund manager.
With that in mind, here are two of the most popular ETFs on the ASX:
Vanguard Msci Index International Shares ETF (ASX: VGS)
This is investment is provided by Vanguard, one of the world’s leading ETF providers. It doesn’t try to make a profit – the owners of Vanguard are the investors themselves, so Vanguard shares the profit by lowering the management fees for investors when it can.
Vanguard Msci Index International Shares ETF has an annual management fee of just 0.18% per annum, which is among the lowest on the ASX. The ETF is more than $2.5 billion in size.
The purpose of the ETF is to provide exposure to many of the world’s largest companies listed in major developed countries. Vanguard says that it offers low-cost access to a broadly diversified portfolio of shares and allows investors to participate in the long-term growth potential of international economies outside of Australia.
It has over 1,500 businesses in its portfolio. Just over two thirds of the portfolio is invested in US shares, though plenty of other countries have a material weighting including Japan, the UK, France, Canada, Switzerland, Germany and so on.
In terms of the actual largest holdings of Vanguard Msci Index International Shares ETF, at the end of November 2020 they were: Apple, Microsoft, Amazon, Facebook, Alphabet, Tesla, Johnson & Johnson, JPMorgan Chase, Visa, Proctor & Gamble, NVIDIA, Nestle and Berkshire Hathaway.
Over the past five years this ETF has generated net returns of 10.6% per annum. Vanguard showed that its price/earnings ratio was 25.5x at the end of November 2020.
Betashares Nasdaq 100 ETF (ASX: NDQ)
This ETF is focused on the largest 100 businesses that are listed on the NASDAQ, which is an American stock exchange.
Many of the largest American tech companies are listed on the NASDAQ. Indeed, its largest holdings include: Apple, Microsoft, Amazon, Tesla, Facebook, Alphabet and Nvidia. These are similar holding names like the Vanguard ETF, however Betashares Nasdaq 100 ETF gives much larger exposure to them in terms of the portfolio weighting. Those seven businesses are not far off making up half of the overall ETF.
However, there are plenty of other businesses that are recognisable in the ETF’s portfolio such as PayPal, Adobe, Netflix, Intel, Broadcom, Qualcomm and Texas Instruments.
The annual management fee of Betashares Nasdaq 100 ETF is higher than the Vanguard one, at 0.48% per annum.
However, the net returns have been much higher in recent years. Over the past year to 31 December 2020 Betashares Nasdaq 100 ETF made a net return of 34.8%. Over the past five years it generated a net return of 22% per annum.
Whilst a large portion of Betashares Nasdaq 100 ETF is dedicated to tech shares, there are some non-tech holdings such as PepsiCo, Costco, Starbucks, Monster Beverage and Moderna, which gives sector diversification.