How to buy 7 banks using only 1 stock on the ASX
Banks are some of the most stable and reliable businesses out there. They’re heavily regulated by government laws and they undergo strict security procedures in order to continue their operations. These are the reasons why many investors keep bank stocks in their portfolio.
What if you want to heavily invest in these stocks? Is there a way to invest in all 7 Australian banks (or most of them) by just buying one stock? With LICs and ETFs, this is possible.
LICs and ETFs
An exchange-traded fund (ETFs) is a security that follows an index. Unlike mutual funds, ETFs can be traded just like any other stock on the exchange.
ETFs own a group of underlying assets such as stocks, bonds, derivatives, forex, and other investment types. Shareholders have indirect ownership over these assets and trade their fluctuation in value.
One advantage of ETFs is that shareholders become entitled to a portion of the dividends earned from the underlying assets.
Listed Investment Companies (LICs) are somewhat similar to ETFs. They are listed on the exchange and can also be traded just like any other stock on the market. They also provide instant diversification to shareholders much like ETFs and mutual funds.
What sets them apart from ETFs is that they’re listed not as funds but as actual companies. The funds managed by LICs are close-ended, meaning the number of shares circulating on the market is fixed. This means the fund itself isn’t affected by entries or exits of shareholders.
LICs also target more specific asset classes with the goal of outperforming the market. They don’t track indices like ETFs.
Top LICs and ETFs You Can Invest In
As discussed, LICs and ETFs both provide instant diversification to your portfolio. You can own shares in the mining, gaming, energy, and consumer industries just by buying a stock of LICs or ETFs. Some of these funds may focus on the financial sector which makes them heavily invested in bank stocks.
Take a look at some of the top LICs and ETFs that have major holdings in banking stocks.
- Australian Foundation Investment Co. Ltd (ASX: AFI)
One of the biggest and most established LICs on the ASX is the Australian Foundation Investment Co. Ltd (AFIC). It has a market capitalization of AU$ 7 billion.
AFIC has large stakes in the Commonwealth Bank of Australia (CBA), National Australia Bank Ltd. (NAB), and Westpac Banking Corp. – all of which are established banks in the country.
The aim of fund managers in AFIC is to outperform the market on a long-term timeframe. This makes it an ideal stock for passive investors and newbies who want to enter the stock market.
- Argo Investments Limited (ASX: ARG)
Argo is one of the most popular LICs on the market, with a capitalization amounting to AU$ 5.5 billion. The company was established in 1946 so you’re assured the business has a solid foundation and history.
Argo’s top holdings include major Australian banks. Among them are the Commonwealth Bank of Australia, Westpac Banking Corp., and Australia and New Zealand Banking Group.
- Australian United Investment Company Ltd (ASX: AUI)
Australian United is another one of the oldie but goodie LICs on the market. They’ve been doing business since 1953 and has grown to a billion-dollar company based on market capitalization.
The company has stakes in banks similar to what Argo has. Their top 4 includes ANZ, Commonwealth Bank, Westpac, and NAB.
- VanEck Vectors Australian Bank ETF (ASX: MVB)
VanEck Vectors focuses on investing in banking stocks. This ETF tracks the MVIS Australia Banks Index (MVMVBTRG) which bases most of its performance on ASX-listed companies in the banking sector.
Its holdings include NAB, ANZ, Bank of Queensland Ltd., Westpac, CBA, and Bendigo and Adelaide Bank.
- Vanguard Australian Shares ETF (ASX: VAS)
VAS invests in companies listed in the ASX 300 Index. Included in their top 10 holdings are Westpac, CBA, NAB, Macquarie, and ANZ.
VAS offers the lowest management fees among ETFs in the ASX. Aside from that, they offer a Dividend Reinvestment Program which allows you to buy more shares of VAS using cash dividends you receive.
Some funds provide exposure to international markets, including the biggest banks in the world.
For example, there’s the Vanguard Emerging Markets Shares ETF (ASX: VGE). This stock provides exposure to more than 3,000 companies located in over 22 countries worldwide, all in a single ETF. Some of their holdings include established banks in countries like China, India, Russia, Taiwan, Thailand, and the Philippines.
If you prefer to invest your money in bank shares, there’s a way to put it in multiple banks by owning just one stock. With LICs and ETFs, you can do this and take advantage of portfolio diversification at the same time. These investment vehicles can even provide exposure to global financial sectors.
The remaining choice is to choose between these two. Your decision between investing in an LIC and an ETF depends on your risk management and profit target.