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2 ETFs to buy for excellent diversification

Tristan Harrison
ASX Global Shares

I strongly believe that the best place for any Australian’s money over the ultra-long-term is (ASX) shares. You don’t need to take on debt to buy shares and they have proven to deliver the strongest returns over time. Exchange-traded funds (ETFs) can offer easy investing and good returns as a way to access shares.

Most investors reading this article will have a good understanding of the businesses on the ASX, but it’s much harder to be knowledgeable about the other 98% of the shares listed around the world.

The easiest way to get exposure to overseas investments could be through an ETF. These funds can give diversification to a whole range of good quality shares, with a low management fee, like these two:

Vanguard All-World ex-US Shares Index ETF (ASX: VEU) 

The idea of this ETF is to invest in many of the world’s largest businesses that are listed outside of the US.

It’s actually invested in almost 3,400 businesses but its biggest 10 holdings are: Nestle, Alibaba, Taiwan Semiconductor Manufacturing, Tencent, Royal Dutch Shell, Samsung, Roche, Novartis, Toyota and HSBC.

The ETF is spread across a number of countries. Each of these has a market allocation of 2.5% or higher: Japan, the UK, China, France, Canada, Switzerland, Germany, Australia, South Korea, Taiwan, Hong Kong, the Netherlands and India. It’s a truly global ETF.

There are plenty of top businesses outside of the US and I think it’s definitely worthwhile getting exposure to them. This ETF’s annual management fee is only 0.09% per annum. It also comes with a dividend yield of 3.2%, which is higher than most other international ETFs.

iShares S&P 500 ETF (ASX: IVV) 

If you want to stick to the leading US-based shares then this could be the best ETF to do it. The S&P 500 has entry requirements that make it higher-quality than most other international ETFs.

You get the biggest exposure to global tech giants like Microsoft, Amazon, Alphabet (Google), Facebook and Apple. But there are also non-tech leaders like Berkshire Hathaway, JPMorgan Chase and Exxon Mobil. It has good sector diversification. 

The ETF has produced strong returns for investors over the past five years, returning an average of 16.2% per annum with good earnings growth, a strong US economy and low interest rates.

Warren Buffett himself recommends that most (American) people should just stick with a S&P 500 ETF like this. This ETF has an annual management fee of just 0.04% per annum, which is extremely low.

Foolish takeaway

Both of these ETFs have very low fees, high quality businesses as their top holdings and good diversification. Out of the two the S&P 500 ETF is probably the better choice, although the All-World ETF is even more diverse and has a decent dividend yield.

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

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019