Exchange-traded funds (ETFs) can be very useful for investing in shares. ETFs make it to invest passively, get access to different industries or invest in different geographic markets.
One of the most popular ETFs is one that gives access to 500 of the biggest companies in the United States, called iShares S&P 500 ETF (ASX: IVV). That’s not a bad choice at all.
But after the recent volatility, I think there are two that could be even more interesting. One provides more diversification in my opinion. While the other may achieve more growth in the coming years because of the businesses it’s invested in.
These two shares could be too good to miss after recent declines.
BetaShares Global Quality Leaders ETF (ASX: QLTY)
This ETF is the one that I think can provide more diversification than the S&P 500 fund.
As mentioned, the S&P 500 fund only invests in US shares. Whereas the QLTY ETF portfolio only has a 61% allocation to US shares, ex-US get a weighting of almost 40%. These include Japan, Switzerland, the Netherlands, France, Denmark, Germany, the United Kingdom, the Hong Kong Stock Exchange, and more.
But, the companies are spread across an array of sectors. There are around 150 names in the portfolio, which is a good number.
What attracts me most to this ETF is that it’s designed to give access to the “world’s highest quality companies”. BetaShares looks to create a quality portfolio by only picking businesses that rank well on four factors – return on equity, debt-to-capital, cash flow generation ability and earnings stability.
So, what sort of businesses qualify as quality?
At the latest disclosure on 27 June 2022, these were the biggest 10 positions: Johnson & Johnson, UnitedHealth Group, Alphabet, Automatic Data Processing, AIA Group Limited, Pfizer, Microsoft, Novo Nordisk, L’Oreal and Accenture.
The QLTY ETF has fallen by around 20% since the beginning of the year. So I think this combined group of businesses are now looking better value. At 31 May 2022, it still showed a double-digit return, with the net return over the prior three years being an average of 11.8%.
BetaShares Cloud Computing ETF (ASX: CLDD)
This investment differs from the S&P 500 fund and the QLTY ETF.
BetaShares says the idea behind this ETF is that:
Cloud computing has been one of the strongest-growing segments of the technology sector, and given much of the world’s digital data and software applications are still maintained outside the cloud, continued strong growth has been forecast.
To get into this ETF’s portfolio, the company must generate a minimum revenue threshold from computing services. The shares that make more money from cloud-based services are prioritised in terms of allocation.
There is a total of 35 names in the portfolio. The biggest 10 positions at the latest disclosure were: DigitalOcean, Zoom Video Communications, Salesforce, Dropbox, Qualys, Netflix, Paycom Software, Digital Realty, Akamai Technologies and SPS Commerce.
I think that the CLDD ETF, as a group of businesses, looks better value after its 30% drop in 2022 to date.
While COVID-19 may have been a temporary boost for some businesses, I think the world will continue to go digital as it has over the past few decades. This should be helpful for revenue growth over time. According to BetaShares’ source (Research and Markets), revenue from global cloud computing services was US$371 billion in 2020. This figure is forecast to reach US$832 billion by 2025.