Exchange-traded funds (ETFs) can be an effective way for investors to gain exposure to the share market while also achieving diversification.
There are some ETFs that provide exposure to a specific industry, while others can provide exposure to a globally diversified portfolio.
These two ETFs were recently rated as buys by leading investment experts:
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Vanguard Diversified High Growth Index ETF (ASX: VDHG)
In a recent episode of 'buy hold sell', Ben Nash from Pivot Wealth rated the VDHG ETF as a buy.
He described this ETF as "rock solid" because of its nature as a diversified index fund and that it automatically rebalances for the investor. Nash said that it has a "reasonably" low cost and that people can sleep easy at night knowing that they will get the market return over time.
What is the ETF actually invested in?
Most of the ETF is invested in Australian shares and larger international shares, almost 80%. The Vanguard Diversified High Growth Index ETF is also invested in smaller international shares, 'emerging market' shares, global bonds, and Australian bonds. The bonds make up around 10% of the portfolio.
That means it provides underlying exposure to ASX shares like BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), CSL Limited (ASX: CSL), and National Australia Bank Ltd (ASX: NAB) as well as global shares such as Apple, Microsoft, Amazon, and Alphabet.
It charges an annual management fee of 0.27%.
BetaShares Global Sustainability Leaders ETF (ASX: ETHI)
This is an ETF that is based solely on international shares. There are no bonds involved.
In a different episode of 'buy hold sell', both Ben Nash and Felicity Thomas from Shaw and Partners rated the ETHI ETF as a buy. It's one of Ms Thomas' favourite ETFs.
This ETF looks to build a portfolio of global businesses that exclude fossil fuel businesses, gambling, alcohol, and other industries that are seen as 'unethical'. Only businesses that are seen as climate leaders in their industry, or are helping the world decarbonise, are included in the portfolio.
After the above exclusions, what remains are the 200 largest businesses in the global share market. Some of the biggest positions include: Apple, Nvidia, Visa, Home Depot, Mastercard, Toyota, ASML, Cisco Systems, and Adobe.
In terms of sector allocations, there are four sectors that had a large weighting at the end of March 2022: IT with a 40.5% allocation, healthcare with a 17.2% allocation, financials with a 15.4% allocation, and consumer discretionary with a 13.1% allocation.
Past performance is certainly not a guarantee of future performance, particularly with interest rates rising. Over the past five years, the ETHI ETF has delivered an average net return of 19.4% per annum. That includes the annual management cost of 0.59%.
