The Equity Investor Journey is a new podcast that I produce in conjunction with the Australian Shareholders' Association.
Here's an episode that I think you will enjoy by way of introduction. The ASA is a fantastic organisation that lobbies for the interests of shareholders as well as providing a wealth of investing education.
This episode features Steve Mabb, a successful businessman turned full-time investor and now an ASA company monitor. He talks about using ASX-listed ETFs to gain exposure to companies that aren’t listed directly on the Australian Stock Exchange (ASX). I've included some edited posts that Steve wrote for the Associations' EQUITY magazine. You may find his thoughts interesting. They provide information that may inspire your own investing decisions.
Our stock market is currently dominated by miners and banks. Great companies for sure — but unlikely to exceed the pace of growth of some of the “new economy” companies listed overseas in the years and decades ahead. As an Australian investor who wants exposure to international technology and real diversification, Steve describes the ETFs that he has invested in to widen his international exposure.
IVV: iShares S&P 500 index
This ETV provides exposure to the top 500 companies listed in the US at any point in time. The fee is only 0.04% and it holds the companies in market weight order; the top holdings are Apple, Microsoft, Amazon, Facebook, Berkshire Hathaway, Google and so on. There is no requirement to fill in any US tax forms on US companies in the ETF, and it pays an annual dividend of around 2% on a quarterly basis. Over one, three and five years IVV has beaten the ASX200 by at least 5% in every period.
NDQ: BetaShares Nasdaq 100 index
This is the best ETF to track the top 100 non-financial companies on the US Nasdaq index. Whilst there is some crossover with IVV, as its top holdings are also Apple, Microsoft, Amazon and Facebook, there is a greater concentration of each and it takes out older style companies like banks and financials.
You are concentrated on the best 100 predominantly tech or new economy companies listed in the US. The fee is currently 0.48% and the current annual dividend yield is 2.2%, paid twice a year. The return of the Nasdaq index over one, three and five years has been well over 10% a year higher than our ASX200 index. You don’t need to worry about picking the winners but you do get to hold the best new economy type companies in the US.
HACK: BetaShares Global Cybersecurity Index
The incidence of governments and companies being hacked and individuals suffering from scams and identity theft seems to keep increasing. When the US government is even having trouble keeping their elections free from interference, you can assume we have a big issue.
This ETF seeks to track the Nasdaq Cybersecurity Index and charges a fee of 0.67%. The index is made up of global companies focused on building and managing security protocols for private and public networks, computers and smart phones.
It is comprised of round 85% US companies, such as Cisco, Palo Alto Networks, Norton and Verisign, as well as a smattering of other countries’ leaders like Thales and Trend Micro. The reason for me to own this more specific group of companies is the likelihood of more and more cyber security problems in the years ahead for governments, companies and individuals.
This is a newer index, so it doesn’t have as much history, total return was around 28% over one year, and more than 16% per year over three years. In 2019 it paid a 9.6% dividend, which was largely due to some realised capital gains and may not be in this range going forward.
VAE: Vanguard FTSE Asia (ex Japan) Index ETF
This ETF is a great way to own around 1200 of the biggest and best companies across the whole Asian region, excluding Japan, Australia and New Zealand. The top five markets are China at 38%, South Korea at 13%, Taiwan at 13%, Hong Kong at 10% and India at 10%.
The top four companies are over 20% of the ETF and are all technology companies — Alibaba, which is like the Amazon of China for both businesses and consumers; Tencent, which is the social media and music giant of China; Taiwan Semiconductor, which is the world’s largest maker of the chips found in our computers and smart phones; and Samsung from South Korea, which is a leading smart phone and electronics company.
While this ETF covers a lot more than technology companies, it has a good representation of them, is well priced by global metrics and has a 0.4% management fee.
ASIA: Betashares Asia Technology Tigers ETF
This is a more themed ETF that tracks the Solactive Asia ExJapan Technology and Internet Index. Essentially, it holds the 50 most innovative and disruptive technology companies in Asia, excluding Japan. Alibaba, Samsung, Tencent and Taiwan Semiconductor are once again the top four holdings, but this time are over 40% of the total.
Some other large holdings are JD.com, which is a huge online retailer in China; Infosys, which is a giant Indian IT business; and Netease, which is a large Chinese computer games business.
If you want to own the best and brightest technology companies in Asia, that are the region’s equivalent of Facebook, Apple, Amazon and the like, then this is a good bet.
The management fee is 0.67%.
CNEW: VanEck Vectors China New Economy ETF
This ETF focuses on fundamentally sound companies in China that have strong growth prospects in sectors making up the “New Economy”: namely, technology, health care, consumer staples and consumer discretionary. It tracks the CSI China New Economy Index which aims to select 120 companies in China with the best growth at reasonable price attributes.
Companies are selected on the basis of the strength of 24 fundamental indicators across four factor categories: growth, value, profitability and cash flow. Food and beverage make up 22%, pharmaceuticals 16%, technology 12% and health care 8%.
If you believe in the ongoing growth potential of China but don’t want to invest directly, this is a good way to get exposure to many sectors and companies that will be a big part of the ongoing growth story.
The costs to manage a portfolio in China are quite high in relative terms, and the management fee is 0.95%.
Shares for Beginners is for information and educational purposes only. It isn’t financial advice, and you shouldn’t buy or sell any investments based on what you’ve heard here. Any opinion or commentary is the view of the speaker only not Shares for Beginners. This podcast doesn’t replace professional advice regarding your personal financial needs, circumstances or current situation.
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