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There are a few exchange-traded funds (ETFs) on the ASX that have the ability to add significant diversification to an Aussie investor’s portfolio.
ETFs allow investors to buy a large amount of shares in a single investment. Sometimes investors can get exposure to hundreds of businesses through a single ETF. Some ETFs provide diversification to thousands of shares.
Here are two of the leading options to consider:
This is one of the cheapest ETFs on the ASX that people can buy. It has an annual management fee of just 0.04%. That is extremely low compared to almost every other ETF on Australian Stock Exchange. Thankfully, it means a very high proportion of the investment returns stay with the investor, rather than being paid to a fund manager.
But the low fees aren’t the only factor to think about with this ETF.
It gives exposure to 500 businesses that are listed in the United States. That’s quite a few more than the ASX 200 or ASX 300.
Plenty of the businesses within this portfolio are leaders in the US, and even best at what they do across the entire world.
For example, Microsoft, Apple, Amazon, Tesla, Alphabet, Facebook/Meta Platforms and Nvidia are global leaders at what they do. But they also still have plenty of growth potential and are delivering attractive earnings growth.
Past performance is not a reliable indicator of future performance, but over the last five years, this ETF has delivered an average return per annum of almost 19%.
Vanguard Msci Index International Shares Etf (ASX: VGS)
There are a few similarities between this ETF and the iShares S&P 500 ETF, such as the biggest holdings.
This option is provided by Vanguard, one of the world-leading providers when it comes to low cost asset management. Indeed, Vanguard’s owners are the investors themselves – it looks to share the profit by lowering fees as much as possible.
When you look at the top holdings of this investment, there are a number of familiar names as the biggest positions, like Apple, Microsoft, Alphabet, Amazon, Tesla, Meta Platforms, Nvidia, JPMorgan Chase and so on.
But what’s different about this ETF is that it provides access to all the share markets from major economically developed places, including the UK, Europe, Canada and Japan.
Whilst there are the big US tech names, there are non-US holdings near the top of the portfolio list like: Nestle, ASML, Roche, LVMH, Toyota, Novo Nordisk and Shopify.
Vanguard Msci Index International Shares Etf has around 1,500 holdings at the latest count. All of this diversification comes at a cost of 0.18% per annum.
Past performance is not a guarantee of future results, but over the last five years, the ETF has delivered an average return per annum of 16%.
Vanguard says the portfolio has an earnings growth rate of 12.6% and a return on equity (ROE) of 15.9%.