Australian ASX Exchange-traded funds (ETFs) could be the best way to navigate this period of COVID-19 instability.
What is an ETF?
An ETF is simply a fund that you can buy on an exchange like the ASX. There are index funds based on widely-known indices like the S&P 500 (INX). There are also some ETFs that are focused on different industries or different geographical areas.
Why ETFs now?
COVID-19 has caused widespread economic disruption, let alone the terrible human toll. It’s difficult to know what’s going to happen for the various impacted ASX companies like CBA (ASX: CBA), Webjet (ASX: WEB) or Crown Resorts (ASX: CWN).
Why not just buy a large group of shares which will increase diversification and lower risk?
You can’t go too wrong with a broad, low-cost ETF like iShares S&P 500 ETF (ASX: IVV). But I prefer these ETF ideas:
Betashares Nasdaq 100 ETF (ASX: NDQ)
Which shares across the world are most likely to come through this okay? Arguably, apart from a few shares supplying consumables fighting coronavirus, I’d say as a group it’s the huge technology shares.
Shares like Apple and Alphabet have huge piles of cash on their balance sheets. Businesses like Netflix and Facebook deliver their services entirely online. Microsoft is doing its part to enable the workforce to work from home, as well as providing Skype and Xbox as forms of entertainment. Amazon is delivering a large amount of goods with online shopping.
You can get exposure to all of these top tech shares, and more, with this ETF. It comes with an annual management fee of 0.48%, so it’s not too expensive compared to many fund managers. The lower Australian dollar is also helping returns.
Vanguard FTSE Asia ex Japan Shares Index ETF (ASX: VAE)
Asia was the first region to be hit by COVID-19 and now countries like China seem to be getting to the other side sooner as well.
This ETF is invested in shares that are based in China, Taiwan, Hong Kong, Singapore and so on. Whilst the coronavirus is certainly economically painful, they may be able to lift their restrictions sooner and it may mean that businesses can get back to earning profit too.
What shares are held by this ETF? Alibaba, Tencent and Samsung are three of the biggest names. But there are plenty of others that are compelling ideas by themselves that will collectively benefit from the rise in wealth of the Asian region.
There aren’t many shares listed in the western world that give exposure to the Asian region which is growing at an attractive rate. And, usually, Asian shares are cheaper than western shares on a price/earnings ratio basis.
This Vanguard Asia ETF has an annual management fee of 0.4%.
BetaShares FTSE 100 ETF (ASX: F100)
The UK is now being hit hard by COVID-19, following on from the experience in Italy.
The UK share market is quite attractively priced compared to US shares and it also offers an attractive dividend yield. It’s an attractive combination.
The FTSE 100 is the biggest 100 shares listed on the London Stock Exchange which includes Astrazeneca, HSBC, GlaxoSmithKline, British American Tobacco, BP, Royal Dutch Shell, Diageo, Unilever, Rio Tinto, Reckitt Benckiser and Vodafone. It’s a quality listed of diversified, global businesses.
Summary
ETFs could be a smart way to steer through this period of instability. It’s hard to pick a favourite of the three. I’m leaning towards the NASDAQ ETF because it’s also nice to be able to buy high quality shares at a lower price.
There are also ASX technology shares that are looking really good, like these top ones:
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Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.