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2 ETFs to buy for strong diversification

There are some ETFs that offer investors strong diversification like Betashares Asia Technology Tigers ETF (ASX:ASIA).
The post 2 ETFs to buy for strong diversification appeared first on The Motley Fool Australia. –

Exchange Traded Fund (ETF)

There are some exchange-traded funds (ETFs) that may be able to give investors strong diversification for their portfolios.

ETFs allow you to invest in a whole basket of shares with just one trade, so it can be very helpful for creating diversification quickly.

Here are two options that give Aussies diversification from a typical ASX share portfolio:

Vanguard MSCI Index International Shares ETF (ASX: VGS)

The idea of this ETF is to give exposure to most of the world’s biggest companies across many of the major developed countries.

It has over 1,500 positions so it is very diversified in terms of the number of holdings that it has.

Vanguard MSCI Index International Shares ETF is invested across a variety of industries. It has significant exposure to information technology (22.5% of the portfolio), health care (13%), financials (12.3%), consumer discretionary (12.3%) and industrials (10.6%).

Due to the fact that most of the world’s biggest companies are listed in the US, it’s not surprising that just over two thirds of the portfolio is allocated to US businesses. But remember, many of those US companies generate their earnings from many countries. Other countries are also represented in the portfolio, Japan has an 8% allocation, the UK has a 4.4% allocation, France has a 3.5% allocation, Canada has a 3.1% weighting, Switzerland has a 3% allocation and Germany has a 3% weighting. Other countries are represented with weightings smaller than 3%. 

In terms of the actual largest positions, the biggest five are: Apple, Microsoft, Amazon, Alphabet (Google) and Facebook.

It has a pretty low cost with an annual management fee of 0.18% per annum.

The longer-term returns of the ETF have been above 10%. Over the past three years it has delivered average net returns per annum of 11.3%. Since inception in November 2014, it has made average returns per annum of 12%.

Betashares Asia Technology Tigers ETF (ASX: ASIA)

This ETF is about giving investors exposure to the 50 largest technology shares in Asia, outside of Japan.

BetaShares says that due to its younger, tech-savvy population, Asia is surpassing the West in terms of technological adoption and the sector is anticipated to remain a growth sector. The ETF provider also said that this investment gives diversified exposure to a high-growth sector that is under-represented in the Australian share market, and a complement to investors with US technology exposure.

The businesses in this ETF are spread across a variety of sectors including e-commerce, semiconductors, cloud computing, home entertainment and so on.

Its largest positions include Samsung, Taiwan Semiconductor Manufacturing, Tencent, Meituan, Alibaba, Pinduoduo, JD.com, Netease, Infosys and Sea.

Betashares Asia Technology Tigers ETF is more expensive in annual costs terms with management fees of 0.67% per annum, but the net returns have also been stronger than the Vanguard one.

Over the past year Betashares Asia Technology Tigers ETF has made a net return of 62%. Since inception in September 2018, the ETF has made average returns per annum of 33.5%. Looking at the index which it tracks, over the past five years the index has made returns of 24.6%.

According to BetaShares, the price / earnings ratio (P/E) of this ETF at 31 December 2020 was 34.3x.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BetaShares Asia Technology Tigers ETF. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post 2 ETFs to buy for strong diversification appeared first on The Motley Fool Australia.

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