Interested in investing in the ASX share market? It can be tricky for beginners to know which ASX shares to buy first when starting an investment portfolio.
The idea of being able to own a small part of a business like Telstra Corporation Ltd (ASX: TLS) or Domino's Pizza Enterprises Ltd (ASX: DMP) sounds intriguing. Some people like to start their investing journey by investing in the businesses they are familiar with.
But there are more potential investments out there than just the most well-known brands.
It can also be important to keep the concept of diversification in mind. By building a well-balanced portfolio that includes a range of companies in different sectors, you can spread the risk between them, safeguarding against wipe-out if one or two investments fail to fly.
However, it can take a while to build a suitably diversified portfolio. One answer for rapid diversification might be to pick an exchange-traded fund (ETF) for your first investment.
An ETF can represent an entire portfolio of dozens, hundreds or even thousands of shares, depending on the ETF. It can provide instant diversification.
There are plenty of ASX companies and ETFs to invest in should you choose.
Some ETFs track a broad index, such as the S&P/ASX 300 Index (ASX: XKO). That's 300 of the biggest businesses on the ASX. The ETF that tracks this is the Vanguard Australian Shares Index ETF (ASX: VAS).
There are also ETFs that give investors exposure to specific industries such as the VanEck Video Gaming and Esports ETF (ASX: ESPO).
However, for those Aussies looking for an investment option that has a climate change or ethical slant to it, I think the ETF I'm about to outline ticks all the boxes.
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BetaShares Global Sustainability Leaders ETF (ASX: ETHI)
This ETF is invested in 200 businesses across the globe, so it ticks the diversification box.
The companies are from many different countries including the United States, Japan, the United Kindom, Switzerland, the Netherlands, France, Hong Kong, Germany, Denmark and other countries.
The fund is quite a unique investment because of the process it follows to pick its holdings.
The selection process starts with the global large-cap share market. The list is whittled down to companies that are in the top one-third of performers in terms of carbon efficiency in their industry, or are involved in helping reduce carbon use in other industries.
Next, the ETF excludes a range of businesses that aren't deemed to be socially or environmentally "acceptable". This way of selection/exclusion is known as ESG investing.
It excludes businesses that are involved in producing fossil fuels. No companies are allowed in the portfolio that are significantly engaged in weapons, gambling, alcohol or junk foods.
Other exclusions are companies with human rights or supply chain issues, and companies that lack gender diversity on the board.
In terms of what the ETHI ETF actually owns, these are some of the biggest positions: Visa, Home Depot, Apple, Mastercard, Nvidia and Toyota.
Foolish takeaway
I think that this ETF is a good option for beginner investors who want diversification and to be invested in companies that appear to be doing the 'right' thing.
Past performance is not a reliable indicator of future performance, particularly in the current volatile environment, but over the three years to April 2022, the ETHI ETF has returned an average of 17% per year despite the volatility.
And in my opinion, the BetaShares Global Sustainability Leaders ETF looks to be better value to buy after dropping almost 20% in 2022 so far.
