ETFs: Expanding your investment choices

ETFs may be a simpler, lower cost way to meet your asset allocation needs

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published March 28, 2012 10:05 am AEDT

Here at the Motley Fool, we are great believers that index funds can be a better solution than many (perhaps most) managed funds. With management fees well below those being charged by many Australian retail funds and the ability to buy and sell shares on the ASX, index funds may be suitable for investors who want flexibility, low cost and diversification.

They can be particularly good for Self Managed Superannuation Funds. If your investment strategy limits your investments, ETFs could be the answer to your prayers.

Variety

The range of ETFs available is expanding constantly, with over 60 ETFs now listed on the ASX. Fancy investing in gold, silver, platinum, British pounds, the Euro or Oil? There's an ETF for each of those, and even an ETF that holds a basket of metals.

iShares offers investments in a wide variety of ETFs, including specific countries like China, Singapore, Taiwan, Korea and Japan; and global sectors, such as Healthcare and Telecommunications.

Russell Investments offers ETFs to invest in fixed income, as well as equity.

Australian ETFs

You can also find ETFs for different sectors of the Australian market, tracking the performance of various indexes, including the S&P/ASX 20 – which tracks the performance of the 20 largest companies in Australia – and the S&P/ASX 200 which tracks the performance of Australia's top 200 listed businesses.

International ETFs

With the Australian Equity market representing just 2% of the world's equities, International ETFs allow investors to increase their exposure to international equities.

Want to invest in Apple Inc (NASDAQ: AAPL), Exxon Mobil Corporation (NYSE: XOM), Microsoft Corporation (NASDAQ: MSFT), IBM Corp. (NYSE: IBM) and General Electric Co (NYSE: GE)? No problem, Vanguard offer the Vanguard US Total Market Shares Index ETF (ASX: VTS), with holdings in all the above companies. With management fees of just 0.07%, you can get exposure to the US market, just by buying shares in the ETF trading on the ASX, like you would any ordinary share.

If you believe that European companies are cheap at the moment, or just want exposure to a recovery in Europe, Blackrock Investment Management offer the iShares S&P Europe 350 ETF (ASX: IEU). This fund invests in Europe's top 350 companies in 17 different European markets and 10 industry sectors. The management fee is slightly higher at 0.6%, but it gives you access to investments in Nestle, BP, Novartis, Royal Dutch Shell (LSE: RDSA) and GlaxoSmithKline (LSE: GSK) amongst others.

More information

If you'd like more information, below are links to most of the current ASX ETF providers, plus a link to the ASX page with more details.

(Please note: we're not recommending or vouching for either the businesses above or their products – the links are for your information and as a start for further research)

As always, check each product thoroughly – fees and charges, any leverage being employed and your exposure to currency movements as well as movements in the price of the underlying assets.

Foolish takeaway

With investing in an ETF now so easy, it may be a good time time to check what fees your financial adviser and managed funds are charging, and compare them to the fees charged by the ETFs.

It may also be a good time to take a closer look at your portfolio asset allocation. Do you want exposure to international equities, fixed income, commodities, oil, or foreign currencies?

If you are looking for ASX investing ideas, look no further than "The Motley Fool's Top Stock for 2012." In this free report, Investment Analyst Dean Morel names his top pick for 2012…and beyond. Click here now to find out the name of this small but growing telecommunications company. But hurry – the report is free for only a limited period of time.

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Motley Fool contributor Mike King owns shares in the Vanguard All-World ex-US Shares ETF and the Vanguard US Total Market Shares Index ETF. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Click here to be enlightened by The Motley Fool's disclosure policy.

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