2 ETFs that could be buys for strong diversification

The exchange-traded funds (ETFs) in this article might be ideas to think about for strong diversification, such as iShares S&P 500 ETF (ASX:IVV).

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There are some exchange-traded funds (ETFs) that might be able to provide investors with strong diversification to international shares.

The ASX only accounts for a small part of the global share market. There are many more businesses out there that Aussies can't invest in on the ASX.

ETFs can be a way to get that exposure whilst sticking to investments on the ASX.

These two investments could be ideas:

iShares S&P 500 ETF (ASX: IVV)

The S&P 500 is an index of US-listed businesses. They are among the biggest in the world. At the top end of the list are global leaders of their industries.

It has a long-term track record of delivering returns for investors because the US is where many of the world's strongest businesses are invested.

This particular ETF has a very cheap annual management fee of just 0.04% per annum. That means that hardly any of the investor returns are lost to fees. Active fund managers can charge both management fees and performance fees, which can reduce total returns over time.

You may recognise some of the largest holdings in the ETF's portfolio: Apple, Microsoft, Amazon, Facebook, Alphabet, Berkshire Hathaway, JPMorgan Chase, Tesla, Johnson & Johnson, UnitedHealth, Nvidia, Visa, Home Depot, Procter & Gamble, Walt Disney, Bank of America, Mastercard and PayPal.

The performance of the S&P 500 has been superior to the S&P/ASX 200 Index (ASX: XJO) in recent years. Over the last three years the iShares S&P 500 ETF has produced an average of 17.4% and over the last decade it has been an average of just over 18%.

According to Blackrock, iShares S&P 500 ETF has a price/earnings ratio of just over 32x.

Betashares Nasdaq 100 ETF (ASX: NDQ)

This is another ETF that is focused on the US share market. However, this one is only invested in businesses that are listed on a particular stock exchange in the US – the NASDAQ. The New York Stock Exchange is utilised more by old-school businesses whilst many tech shares are listed on the NASDAQ.

Not only is this ETF more focused on tech, but it also only has 100 holdings. So investors can gain more exposure to the largest tech names.

These are some of the largest positions in the portfolio right now: Apple (10.8%), Microsoft (9.6%), Amazon (8.3%), Alphabet (7.6%), Facebook (4.1%), Tesla (3.8%), Nvidia (3%) and Paypal (2.4%).

The tech giants have performed strongly over the last several years, which has helped the returns of the Betashares Nasdaq 100 ETF. Since inception in May 2015 it has produced an average return per annum of 21.6%. Over the last three years the average return per annum has been 27.5%.

The biggest businesses are the ones that are shaping the way we are living in certain areas in our lives, particularly since the onset of COVID-19. For example, Microsoft offers huge amounts of functionality for businesses and individuals in the shift to digital working and learning.

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of BETANASDAQ ETF UNITS. The Motley Fool Australia has recommended BETANASDAQ ETF UNITS and iShares Trust - iShares Core S&P 500 ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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