Investing in ETFs in Australia
They say that to reduce investment risks, portfolio diversification is a must. But researching each stock, bond, or similar assets to invest in can be time-consuming and overwhelming.
If you’re looking for a way to quickly diversify your portfolio, try investing in an exchange-traded fund or ETF.
What is an ETF?
An ETF is a fund made up of a mix of several securities that may include shares, bonds, metals, currencies, commodities, and other asset classes. ETFs can be bought and sold like how you would buy stocks in the ASX.
In Australia, there are basically two types of ETFs:
- Active ETFs
These are ETFs that aim to outperform the market or an index. They generate higher returns in exchange for higher risks.
- Passive ETFs
Passive ETFs are also called index funds because their main objective is to track a specific index or benchmark.
Like any other investment, ETFs can earn you capital gains and dividends. They’re also more cost-effective compared to separately buying and managing stocks, bonds, and other related assets.
Aside from instant portfolio diversification, investors primarily love ETFs because they’re easily accessible. ETFs also have lower fees than traditional managed funds.
Online Brokers for ETF Investing
Investing in ETFs is more convenient than ever with the availability of online platforms.
Here’s a shortlist of the best online platforms where you can trade ETFs:
1) CMC Markets Stockbroking
3) eToro Share Trading
4) IG Share Trading
5) SelfWealth Trading
Don’t forget to look at the brokerage fees when choosing a platform where to trade ETFs. There are also inactivity fees that may eat up your account if you don’t use it within a certain period.
Best ETFs in Australia
Are you excited to buy your first ETF share but don’t know where to start? Here’s a list of the top-performing ETFs listed in the ASX:
- BetaShares NASDAQ 100 (NDQ)
It focuses on top technology stocks like Apple, Facebook, and Microsoft.
- SPDR S&P 500 ETF Trust (SPY)
Although this mostly comprises of the hottest technology stocks in North America, it also gives access to the giants in other industries. The ETF also exposes you to poorly represented sectors in Australia like pharmaceuticals, semiconductors, railroads, and aerospace industries.
- iShares Global 100 (IOO)
This tackles the best large-cap companies worldwide, including those in developed and emerging markets.
- iShares Core S&P/ASX 200 (IOZ)
If you want to focus on the local market, IOZ will give you exposure to the top blue-chip companies in Australia. This ETF is heavily invested in the local financials and materials sectors.
- iShares MSCI Emerging Markets (IEM)
This ETF will give you exposure to the largest and most promising companies in Asia.
- iShares S&P/ASX 20 (ILC)
This ETF is also focused on the local market but emphasizes income generation. Currently, this ETF gives a dividend yield of 5.16% quarterly.
- SPDR S&P Global Dividend Fund (WDIV)
If you’re looking for consistent and stable yields, this ETF is one of the best options. Dividend payments are given to investors semi-annually.
- BetaShares Australian Bank Senior Floating Rate Bond (QPON)
This provides exposure to the biggest and most liquid bonds issued by Australian banks. Although the returns are small, it can give you a steady monthly stream of extra income.
- BetaShares Commodities Basket (QCB)
This ETF focuses on local commodities investment.
- BetaShares Australian Equities Strong Bear Hedge Fund (BBOZ)
This is often used as a hedge by investors as it profits from value declines in the ASX 200 benchmark.
Although investing in ETFs relatively has lower risks, you can’t just disregard them and buy shares without a care in the world. The underlying assets in each ETF can still decline in value and you can lose money in the process.
You still have to do your homework and review the performance of each ETF before you start putting your money in any of them.