Exchange-traded funds (ETFs) are able to give investors attractive levels of diversification.
Here are two to consider:
Vanguard MSCI Index International Shares ETF (ASX: VGS)
This ETF is about giving investors exposure to many of the world’s largest companies listed in major developed countries.
Vanguard, the ETF provider, says that it offers low-cost access to a broadly diversified range of securities that allows investors to participate in the long-term growth potential of international economies outside Australia.
It’s invested across many different countries including the USA, Japan, the UK, France, Canada, Switzerland, Germany, Netherlands, Sweden, Hong Kong, Denmark, Spain, Italy, Singapore, Finland, Belgium, Norway, Israel and Ireland. That’s the geographical diversification.
In terms of the industry diversification, there are five sectors that get a double digit allocation in the Vanguard MSCI Index International Shares ETF portfolio: information technology (22.5%), health care (13%), financials (12.3%), consumer discretionary (12.3%) and industrials (10.6%).
The ETF has an investment in over 1,500 businesses, but the largest companies in the world get the biggest allocation. Its biggest holdings include: Apple, Microsoft, Amazon, Alphabet, Facebook, Tesla, Johnson & Johnson, JPMorgan Chase, Visa and Proctor & Gamble.
It has an annual management fee of 0.18% per annum, which means a lot of the gross returns still turn into net returns for the ETF. Since inception in November 2014, Vanguard MSCI Index International Shares ETF has delivered net returns of 12% per annum.
Betashares Asia Technology Tigers ETF (ASX: ASIA)
This ETF is provided by BetaShares. It doesn’t have 1,500 holdings like the Vanguard one – it owns 50 of the biggest Asian technology businesses outside of Japan.
BetaShares said that due to its younger, tech-savvy population, Asia is surpassing the West in terms of technological adoption and the sector is anticipated to remain a growth sector. The ETF provider said that one of the main reasons to consider this investment is that in one trade, Betashares Asia Technology Tigers ETF provides diversified exposure to a high-growth sector that is under-represented in the ASX share market, and a complement to investors with US technology exposure.
The management cost of this ETF is 0.67% per annum.
For that cost, you get significant exposure to Asian names like Taiwan Semiconductor Manufacturing, Meituan, Samsung Electronics, Tencent, Alibaba, Pinduoduo and JD.com.
There is a heavy Chinese focus with Betashares Asia Technology Tigers ETF, with an allocation of 55% of the portfolio. Another 21.4% is invested in Taiwan businesses, 18.1% is invested in South Korea and 4.9% is invested in Indian companies.
Betashares Asia Technology Tigers ETF has delivered outperformance with its net fees in recent years. Over the last six months the net return has been 33.75%, over the last year the net return was 71.5% and since inception in September 2018 the ETF has made an average net return per annum of 37.2%.