I think these two exchange-traded funds (ETFs) could be perfect for beginners, with both offering global diversification.
Diversification
For a beginner, or any investor, I think it’s important to keep in mind that sufficient diversification is necessary. That means not to have all of one’s investments focused on domestic Australian businesses, or just be invested in banks.
There are a number of great ETFs that could deliver everything an investor is looking for. If a beginner wanted to keep things simple, they may only need a small number of ETFs.
VanEck Morningstar International Wide Moat ETF (ASX: GOAT)
This ETF is similar to the Vaneck Morningstar Wide Moat ETF (ASX: MOAT), which I really like, but with a key difference. The GOAT ETF invests in international companies outside of Australia.
On 20 March 2023, it had 74 holdings from across the world. Just over half of the portfolio is invested in the US, which is less than some popular international-based ETFs. Meaning, I think this ETF offers more geographic diversification than other competing options.
The investment style of the portfolio is a “focus on international companies Morningstar believes possess sustainable competitive advantages, or with ‘wide’ economic moats”.
Investments are only made if the target companies are “trading at attractive prices relative to Morningstar’s estimate of fair value”.
This ETF was only formed in September 2020. But, the index that it tracks has achieved an average return per annum of over 15.5% in the last decade.
BetaShares Global Sustainability Leaders ETF (ASX: ETHI)
This is another global ETF, provided by BetaShares. It’s one of the largest Australian ETF providers.
The concept of this investment is that it owns a portfolio of large global businesses, like Visa, Nvidia, Apple and Mastercard.
But, any business that could be included has to be identified as a ‘climate leader’ that have also passed a screening process that excludes various industries like fossil fuels, armaments, gambling, alcohol and ‘junk food’.
It also excludes businesses that lack gender diversity on the board, as well as excluding companies that have human rights or supply chain issues.
There are other exclusions as well, but you get the gist of the idea.
Around 70% of the portfolio is invested in US businesses, but it’s good to see that diversification with the other 30% of the portfolio in countries like Japan, Switzerland, the Netherlands, Germany and the UK.
Past performance shouldn’t be used as an indicator of future performance. But, over the past five years, the ETHI ETF has generated an average return per annum of 15.4%.
