2 ETFs to buy for strong global diversification

The 2 ETFs in this article have the ability to give investors a good level of diversification. One is iShares S&P 500 ETF (ASX:IVV).

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There are plenty of exchange-traded funds (ETFs) that offer investors the ability to get global diversification.  

However, there are a few that are particularly popular for the low management fees, returns and amount of diversification.

These two in-particular may be able to fit the bill and deliver returns in a passive way that is useful:

Vanguard MSCI Index International Shares ETF (ASX: VGS)

This is Vanguard’s offering for Aussie investors to invest across the developed world’s share market in a single investment.

Inside the ETF’s portfolio are most of the world’s biggest companies. So, investing in this ETF gives exposure to the long-term growth of many international economies outside of Australia, according to Vanguard.

At the end of February 2021, it actually had 1,530 holdings.

Inside the portfolio are many of the world leaders like: Apple, Microsoft, Amazon, Facebook, Tesla, Alphabet, Johnson & Johnson, JPMorgan Chase, Visa, Nestle, NVIDIA, Berkshire Hathaway, Procter & Gamble, Walt Disney, Mastercard, PayPal, Roche, Intel, Netflix, ASML, Adobe, Salesforce, Novartis, Pfizer, Walmart, Cisco Systems, Broadcom, Qualcomm, LVMH, Nike, Costco, McDonald’s, Accenture, Unilever and so on.

In terms of the management fee, it has an annual cost of 0.18%. This is one of the lower-costing ETFs on the ASX.

Vanguard MSCI Index International Shares ETF provides global diversification – around two thirds of the ETF is invested in US businesses. But there are also plenty of countries that make up more than 1% of the portfolio including Japan, the UK, France, Canada, Switzerland, Germany, the Netherlands, Hong Kong and Sweden.

The ETF was listed on the ASX in November 2014. Since inception, the ETF has delivered total net returns of 11.9% per annum.

iShares S&P 500 ETF (ASX: IVV)

This ETF has a much stronger focus on US businesses. The S&P 500 is made up of 500 big businesses that are listed in the US.

It gives exposure to all of the FAANG shares as well as many other industry-leading businesses like Walt Disney, Boeing, Starbucks, Caterpillar, Deere, 3M, Lockheed Martin, S&P Global, Activision Blizzard and Colgate-Palmolive.

iShares S&P 500 ETF also has a very low cost. Its management fees are actually just 0.04% – this is one of the cheapest on the ASX.

The US share market has performed strongly over the last decade, leading to the S&P 500 being one of the best-performing popular indices. Over the last five years the iShares S&P 500 ETF has returned an average of 14.7% per annum and over the last ten years the ETF has returned an average of 16.4% per annum.

There are five sectors in the ETF’s portfolio that have weightings of more than 10%. Those are: communication (11.1% weighting), financials (11.5% weighting), consumer discretionary (12.3% weighting), healthcare (12.8% weighting) and IT (26.7% weighting). Different FAANG shares count as different sectors – Amazon is classified as a consumer discretionary business, whilst Facebook and Alphabet are classified as communication companies.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended iShares Trust - iShares Core S&P 500 ETF and Vanguard MSCI Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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