eExchange Traded Funds, or ETFs for short, have exploded in popularity in recent times — and for good reason. They provide low-cost, low-risk access to almost any asset you care to imagine. Best of all, those that mimic some of the broader sharemarket indices have tended to trounce their actively managed cousins, much to the embarrassment of professional fund managers.
For those that are unfamiliar with ETFs, they are simply just managed funds that happen to be traded on the sharemarket (hence the name). Investors buy and sell units in a portfolio of assets in the same way that they would buy shares in a listed company, which means ETF are very liquid. Further, because most simply follow a market index, the costs are typically quite low, usually less than 0.5% p.a. of the funds under management.
For Aussie investors looking to gain exposure to offshore markets, ETFs are especially attractive; there's no need to bother with establishing international trading accounts, or worrying about added tax complications. And, frankly, most Australians have a woeful exposure to companies outside of the ASX and are in dire need of broadening their horizons — it's just not sensible to have all your money tied up in banks and miners (which represent much of the local market).
International exposure provides a good degree of ballast against any domestic issues we may experience. Indeed, if the Aussie economy and market get into a funk, offshore investments are not only likely to be unaffected, but a likely drop in the Aussie dollar will magnify the returns from international investments.
Furthermore, though we certainly have many great companies on the local market, there's nothing equivalent to the international giants you'll find on US and European markets. Companies that have profits greater than the GDP of many nations!
If you're looking to look beyond Australia, here are three of my favourite ETFs:
- The NASDAQ 100 ETF (ASX:NDQ) from BetaShares is perfect for those investors looking to invest in the world's biggest and best tech companies. Following its US namesake, it tracks the 100 largest companies on the NASDAQ (excluding financials), with the largest holdings including Apple, Microsoft, Amazon, Alphabet (formerly Google) and Facebook. The annual fee is just 0.48%.
- Income investors may want to check out BetaShares S&P 500 Yield Maximiser Fund (ASX:UMAX) which tracks the S&P 500 index. In order to boost the yield (US shares don't typically pay much in the way of dividends), the fund writes call options to deliver added income. The details get a bit technical, but this is a low risk options strategy whose major risk is that it limits gains in strongly rising markets (in other market environments, it tends to outperform). With a 0.79% management fee and a solid 5.6% yield (unfranked), it's well worth checking out.
- Last but not least, the iShares Global Consumer Staples ETF (ASX:IXI) is perfect for those that want to concentrate on global consumer staples stocks. That is, businesses that enjoy fairly reliable earnings throughout the cycle, such as Coca-Cola, Nestle, Proctor & Gamble, Unilever and Altria. These are about as safe as companies get, and with 97 of the world's best it's about as diversified as you can get! With an annual management fee of 0.47%, I think it's definitely one to consider.
So there you have, three easy trades that will give you instant diversification, offshore exposure and ownership in some of the world's great companies. What are you waiting for?
