Exchange-traded funds (ETFs) can be an effective way to invest into shares in Australia or internationally.
Picking ETFs allows investors to get exposure to a wide range of businesses in a single investment. That can provide an attractive amount of diversification.
There are some ETFs on the ASX that have delivered net returns that have been stronger than the S&P/ASX 200 Index (ASX: XJO) over the last few years. Whilst past performance is not a reliable indicator of future performance, these two could be ones worth considering:
Betashares Nasdaq 100 ETF (ASX: NDQ)
This ETF is about the US share market, but just the businesses listed on the NASDAQ. The NASDAQ is one of the main American stock exchanges.
The NASDAQ is actually the home to many of the world’s largest technology businesses like Apple, Microsoft, Amazon.com, Tesla, Alphabet, Nvidia, Facebook, Adobe and Netflix. Whilst there are a total of 100 businesses in the portfolio, just the nine names I’ve mentioned make up almost 55% of the portfolio.
It’s a tech heavy portfolio. ‘IT’ makes up almost half of the sector allocation. Communication services and consumer discretionary are another 19.5% and 17.5%, respectively. Keep in mind that Amazon and Tesla count as consumer discretionary, whilst Alphabet, Facebook and Netflix count as communication services.
But there’s more than just the global tech giants in this portfolio. There are plenty of other market-leaders within the ETF like PayPal, Cisco Systems, Costco, Broadcom, Texas Instruments, Intuit, Advanced Micro Devices, Qualcomm, Moderna, Intuitive Surgical, Autodesk, ASML and Docusign.
Many of these businesses are ones that have introduced products or services that are changing the world.
Over the last three years the Betashares Nasdaq 100 ETF has produced average returns per annum of almost 25%.
VanEck Morningstar Wide Moat ETF (ASX: MOAT)
This ETF is not just based on a passive index. It is actively managed by analysts from the research outfit Morningstar.
The provider of this ETF is called VanEck, which explains that this ETF has a focus on quality US companies that Morningstar believes possess sustainable competitive advantages, or a wide economic moat. A moat is an analogy for how hard it is for competitors to attack the castle/business. The better the moat, the harder it theoretically is for a competitor to do any damage.
Morningstar believes that the businesses in ETF’s portfolio have competitive advantages that could last for many years.
However, the VanEck Morningstar Wide Moat ETF also only targets the wide-moat businesses that are currently at attractive value relative to Morningstar’s estimate of fair value. In other words, it thinks they’re good value.
Whilst there is an active process, where the portfolio positions regularly change, the ETF has an annual management fee of 0.49% per annum.
Over the last three years, the VanEck Morningstar Wide Moat ETF has produced average returns per annum of 17.9% per annum. That outperformed the return of the S&P 500 return over the last three years, which was an average of 15.4% per annum.