If you’re an investor who has already built some solid financial foundations – you have money in an ISA, a cash emergency fund tucked away and you have some basic tracker index investments – you might be wondering where to put your money next.
Rather than simply adding more of the same, or adding risk by picking individual stocks, ETFs which are sector, geographical or weighting-specific could offer a relatively inexpensive way to broaden your portfolio.
Earlier this year, we highlighted five funds worth considering for Stocks and Shares ISA investors. But with markets continuing to swing wildly and concerns lingering over whether booming artificial intelligence stocks have become overvalued, diversification has become an even bigger talking point.
No one knows whether a market correction is around the corner. History suggests that, despite periods of volatility, shares have tended to outperform cash and bonds over the long term. The challenge is ensuring you aren’t overly reliant on one sector, country or investment theme.
That’s where ETFs come in.
What is an ETF?
An exchange traded fund (ETF) is a basket of investments – typically shares, bonds or a combination of the two – that trades on the stock market like an individual share.
Most ETFs are passive investments, meaning they simply aim to track the performance of a particular index, such as the FTSE 100 or the S&P 500, rather than trying to beat it. Because there is no team of managers actively picking stocks, charges are generally much lower than for actively managed funds.
Buying a single ETF can give investors exposure to hundreds, or even thousands, of companies around the world. Others focus on particular countries, industries or investment styles, allowing investors to tilt their portfolios towards areas they believe have stronger long-term prospects.
Here are four ETFs that investment experts believe are worth considering – specifically for those who either already have, or do not desire, an additional US tech-only focus in their portfolio.
JPMorgan Global Research Enhanced Index Equity Active UCITS ETF
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Terms and conditions apply.
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Kathleen Brooks, research director at XTB, opts for the JPMorgan Global Research Enhanced Index Equity Active UCITS ETF – a twist on passive ETFs as this one is managed.
“We could be at a turning point for global markets. Is the AI theme a bubble? Will earnings season deliver? Is the Magnificent 7’s capex binge over? Volatility and uncertainty are rising and this is why I have picked an active ETF,” she explains.
Managed ETFs can act as a hedge for your portfolio if indices head lower overall or if sentiment changes. This particular active ETF allows managers to buy and sell positions in the MSCI World index according to changing conditions. When uncertainty rises, that trade-off “is worth the small extra charge” of 0.25 per cent annually, adds Ms Brooks.
Franklin FTSE Korea UCITS ETF
For investors looking even further beyond the US, Marcus Weyerer, director of ETF investment strategy at Franklin Templeton, believes South Korea offers an interesting opportunity.
The country’s stock market has been supported this year by strong demand for semiconductor and artificial intelligence companies, alongside government reforms aimed at improving corporate governance.
Rising global defence spending is also expected to benefit Korean manufacturers.
The Franklin FTSE Korea UCITS ETF tracks a broad index of Korean companies while limiting the size of its largest holdings to reduce concentration risk. Its ongoing annual charge is 0.09 per cent.
Invesco MSCI World Equal Weight ETF
Global stock market indices have become increasingly dominated by the so-called Magnificent Seven US technology giants.
Alan Miller, chief investment officer at SCM Direct, argues that investors wanting global exposure without relying so heavily on those companies should consider the Invesco MSCI World Equal Weight ETF.
Unlike traditional world trackers, which allocate a large proportion of investors’ money to the biggest companies, this ETF gives roughly equal weight to more than 1,300 developed-market businesses. That means returns are driven by the broader global economy rather than the fortunes of a handful of technology stocks.
The fund charges 0.20 per cent a year.
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State Street SPDR S&P Global Dividend Aristocrats UCITS ETF
Finally, investors seeking income rather than rapid growth may prefer companies with long records of paying reliable dividends.
Jonathan Moyes, head of investment research at Wealth Club, highlights the State Street SPDR S&P Global Dividend Aristocrats UCITS ETF, which invests in around 100 companies that have maintained or increased dividend payments for at least a decade.
The annual charge of 0.45 per cent is higher than many passive ETFs, but supporters argue the stricter selection criteria can provide exposure to businesses with resilient earnings and established dividend records.
As always, investors should ensure any investment fits their own objectives, time horizon and appetite for risk before buying, and use these suggestions as a starting point for their own research to add diversification to their portfolios.
When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.
Source: Original Article
