2 ETFs for strong diversification in September 2021

iShares S&P 500 ETF is one to consider for diversification.

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Exchange-traded funds (ETFs) can be an effective way to gain diversification in just one investment. The two in this article could be good to think about in September 2021.

Aussies may benefit from investing in non-ASX shares for geographic diversification and probably sector diversification as well. The ASX is quite focused on resource businesses and banks.

Some ETFs have very low management fees, allowing investors to get exposure to global blue chips for a low price.

So that’s why these two ETFs could be ideas this month:

iShares S&P 500 ETF (ASX: IVV)

Warren Buffett himself is a fan of S&P 500 funds for the diversification and low costs that they offer.

iShares S&P 500 ETF is one of the cheapest ETFs on the ASX. It has an annual management fee of just 0.04%. That means almost all of the gross returns can turn into net returns for investors.

There have been a lot of returns over the last decade, though past performance does not guarantee future results. In the past ten years, the ETF has delivered an average return per annum of 19.9%.

A portfolio-based investment like this one simply provides the combined return of its underlying holdings. At the end of August, these were its largest positions: Apple, Microsoft, Amazon.com, Facebook, Alphabet, Tesla, Nvidia, Berkshire Hathaway and JPMorgan Chase. These businesses are some of the global leaders at what they do. 

As the name suggests, it actually owns 500 businesses. These holdings are some of the largest and most profitable in the US and indeed the world. They come from many different sectors, but technology, healthcare and consumer discretionary are the three industries with the largest representations.

Vanguard MSCI Index International Shares ETF (ASX: VGS)

This ETF actually provides even more diversification than the S&P 500 one.

It’s not just invested in US shares, it is invested in many major developed countries like Japan, the UK, France, Canada, Switzerland, Germany, the Netherlands, Sweden and so on.

Vanguard MSCI Index International Shares ETF also has ownership of more businesses. Its number of holdings is just over 1,500.

All of that diversification comes with an annual management fee of 0.18% per annum.

In terms of the biggest holdings, it has a similar list to the S&P 500: Apple, Microsoft, Alphabet, Amazon.com, Facebook, Tesla, NVIDIA, JPMorgan Chase, Johnson & Johnson and Visa. But because there are more positions (around 1,500), the allocation is smaller to these huge US companies because the money has to be split more ways.

There are obviously plenty of non-US shares in there too like Nestle, Roche, LVMH, Novartis, Toyota, AstraZeneca, Shopify and Novo Nordisk.

Whilst technology is the industry that still gets the biggest allocation with this ETF too, the financials sector is higher up the allocation list. Healthcare is a close third.

The returns here haven’t been quite as high as the S&P 500 – over the last five years the Vanguard MSCI Index International Shares ETF has returned an average of 15.3%.

Should you invest $1,000 in iShares S&P 500 ETF right now?

Before you consider iShares S&P 500 ETF, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and iShares S&P 500 ETF wasn't one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF and iShares Trust – iShares Core S&P 500 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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