Investing in ASX ETFs has been a popular investment strategy over the past 5 years.
Up until recently, US focused ASX exchange traded funds (ETFs) were among the most popular and successful investments.
For example, over the past 5 years, Betashares Nasdaq 100 ETF (ASX: NDQ) has returned an impressive 19.6% per annum. This has mostly been driven by the success of the Magnificent Seven companies, including Nvidia Corp (NASDAQ: NDVIA), which is up more than 1,500% over the past 5 years.
However, more recently, investors have begun to move away from the US, prompted by the US trade war.
As a result, some investors have been searching for alternative investment options. For ETF investors, there are several ASX ETFs outside the US that also have enviable track records.
Let's explore two options.
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VanEck Australian Banks ETF (ASX: MVB)
VanEck Australian Banks ETF has climbed 118% over the past 5 years. For a management expense of 0.28%, investors gain exposure to seven Australian banks and financial institutions.
That includes the big 4 banks, as well as Macquarie Group Ltd (ASX: MQG), Bendigo & Adelaide Bank Ltd (ASX: BEN) and Bank of Queensland Ltd (ASX: BOQ). It offers a dividend yield of 4.4%.
While exposure is diversified within the banking sector, these stocks are highly correlated. Therefore, this ETF is most suitable when combined with other ASX ETFs to improve diversification and reduce risk.
SPDR S&P/ASX 200 Financials EX A-REIT ETF (ASX: OZF)
Another option to consider is SPDR S&P/ASX 200 Financials EX A-REIT ETF, up 111% over the past 5 years. The ETF aims to track the S&P/ASX 200 Financials Ex A-REIT Index to effectively represent the financial sector within the S&P/ASX 200 Index. For a management expense of 0.34%, investors gain exposure to 30 companies within the financial sector. This includes banks, REITS and insurance companies. OZF ETF offers a dividend yield of 3.8%.
Although it contains a higher number of holdings relative to the MVB ETF, the correlation between these companies is likely to still be reasonably high. Therefore, it should also be combined with other ASX ETFs to increase diversification. Many experts suggest owning between 25 and 30 stocks for optimal diversification. However, the correlation between those stocks is just as important as the number of stocks held.
Foolish Takeaway
With the 'sell America' trade gaining traction, US focused ETF investors might find themselves looking for alternative options. Those looking for ASX ETFs with impressive 5 year track records are in luck. Both the MVB ETF and OZF ETF have easily cleared this benchmark, driven by the success of Australia's financial sector.
