Commonwealth Bank of Australia (ASX: CBA) shares have been on a remarkable run over the past 18 months, climbing to record highs and leaving many investors sitting on solid gains.
But the rally has also pushed the bank's valuation into expensive territory. Almost all major brokers are now warning of significant downside from current levels, citing stretched price-to-earnings multiples and limited near-term growth catalysts.
For investors concerned about CBA's lofty valuation, it could be worth locking in some profits and rotating into diversified exchange traded funds (ETFs) that still offer blue-chip quality and attractive income potential. Here are three options to consider.
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iShares S&P 500 ETF (ASX: IVV)
The iShares S&P 500 ETF could be worth considering. It offers investors easy exposure to the largest and most influential companies in the United States, including Alphabet Inc (NASDAQ: GOOGL), Berkshire Hathaway (NYSE: BRK.B), and JP Morgan (NYSE: JPM). These businesses dominate their industries, have strong balance sheets, and operate on a truly global scale.
The S&P 500 has historically delivered strong long-term returns, supported by economic strength of the US. By swapping some of your CBA holding for the iShares S&P 500 ETF, you can broaden your portfolio beyond Australia while still owning market-leading businesses.
Vanguard Australian Shares Index ETF (ASX: VAS)
The Vanguard Australian Shares Index ETF is another ASX ETF to consider instead of CBA shares. It tracks the performance of the ASX 300 Index, giving investors exposure to a broad basket of Australian companies. This includes many of the blue-chip names familiar to investors, such as BHP Group Ltd (ASX: BHP), Woolworths Group Ltd (ASX: WOW), and Telstra Group Ltd (ASX: TLS).
By holding the Vanguard Australian Shares Index ETF, you're not relying on the performance of a single company or sector. The ETF spreads your investment across mining, banking, healthcare, retail, and more, helping to smooth returns while keeping you invested in the Australian market.
Vanguard Australian Shares High Yield ETF (ASX: VHY)
If income is your main reason for owning CBA shares, the Vanguard Australian Shares High Yield ETF could be worth a look. This ETF targets ASX shares with high forecast dividend yields, offering a diversified stream of franked dividends. This includes from the likes of National Australia Bank Ltd (ASX: NAB), Wesfarmers Ltd (ASX: WES), and Fortescue Ltd (ASX: FMG).
The Vanguard Australian Shares High Yield ETF currently trades with an attractive trailing yield of approximately 4.7%, making it a good option for income-focused investors who want exposure to quality Australian shares.
