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Australian investors can gain broad exposure to US markets through several exchange-traded funds (ETFs). An ETF is an investment vehicle that tracks an index, sector or commodity, which can be purchased by an investor on an exchange the same way a regular stock can be purchased. ETFs provide an easy way for investors to gain broad market exposure at a low cost (management fees differ between ETFs). The four ETFs that are discussed in this article include iShares Core S&P 500 ETF (ASX: IVV), Betashares Nasdaq 100 ETF (ASX: NDQ), VanEck Morningstar Wide Moat ETF (ASX: MOAT) and ETFS FANG+ ETF (ASX: FANG).
iShares Core S&P 500 ETF (ASX: IVV)
IVV aims to provide investors with the performance of the S&P 500 Index, before fees and expenses. The index is designed to measure the performance of large capitalisation US equities. IVV has returned 33%, 17%, 18%, 21% over a 1-year, 3-year, 5-year, and 10-year period respectively. The management fee for this ETF is extremely low at 0.04%. The top three holdings of the ETF are Apple (6%), Microsoft (6%) and Amazon (4%) and the top three sector exposures are information technology (28%), health care (13%) and consumer discretionary (12%).
Betashares Nasdaq 100 ETF (ASX: NDQ)
NDQ aims to track the performance of the NASDAQ-100 Index, before fees and expenses. The NASDAQ-100 comprises 100 of the largest non-financial companies listed on the NASDAQ market and includes many companies that are at the forefront of the new economy. NDQ has returned 30%, 28% over a 1-year and 3-year period respectively. The management fee for this ETF is higher than IVV at 0.48%. The top three holdings of the ETF are Apple (11%), Microsoft (10%) and Amazon (8%) and the top three sector exposures are information technology (49%), communication services (20%) and consumer discretionary (17%).
VanEck Morningstar Wide Moat ETF (ASX: MOAT)
MOAT gives investors exposure to a diversified portfolio of attractively priced US companies with sustainable competitive advantages according to Morningstar’s equity research team. MOAT aims to provide investment returns before fees and other costs which track the performance of the Index. This is a different strategy compared to IVV, MOAT somewhat actively picks companies to invest in (based on Morningstar’s equity research team) compared to IVV, which just tracks the S&P 500 index. MOAT has returned 38%, 19%, 19% over a 1-year, 3-year and 5-year period. MOAT’s strategy has been able to outperform the S&P 500 over all these periods. The top three holdings of the ETF are Servicenow (3%), Alphabet (3%) and Microsoft (3%) and the top three sector exposures are health care (20%), information technology (17%) and industrials (15%).
ETFS FANG+ ETF (ASX: FANG)
FANG aims to provide investors with a return that, before fees and expenses, tracks the performance of the NYSE FANG Index by investing in the shares that make up the index in proportion to their index weights. The index focuses on those companies representative of high growth technology or advanced technology-driven sectors on the major U.S. stock exchanges. This is a different strategy compared to NDQ, FANG holds 10 of the largest technology companies globally. FANG has returned 36.42% over a 1-year period (this ETF was listed in early 2020). The top three holdings of the ETF are Tesla (11%), Alphabet (11%) and Nividia (11%) and the top three sector exposures are communication services (50%), consumer discretionary (28%) and information technology (22%).
Combinations, risk and US markets
Depending on the investor’s preference on asset allocation, regional allocation and risk tolerance would determine which ETF, or which combinations of ETFs are best suited to the investor. The choice to present these four investment vehicles should allow investors to consider different strategies towards gaining exposure to the US. A combination of IVV and NDQ would provide an investor broad more passive exposure to the S&P 500 and the Nasdaq. While a combination of MOAT and FANG (alternative strategies to IVV and NDQ) would provide similar exposure but at a more high-risk strategy that could offer higher returns.
The US stock market has performed extraordinarily well over the past decade. To compare the US market to the global share market, ASX: VGS (which tracks MSCI world) returned 31.43%, 14.77% and 15.67% over a 1-year, 3-year and 5-year period respectively. IVV, which tracks the S&P 500 has returned higher than MSCI world. Although past performance is not an indicator of future performance, this shows that having exposure to a range of international markets can be beneficial for an investor’s regional and asset allocation.
The other strategy for investors to gain exposure to US markets would be to purchases direct US stocks (assuming your broker can trade on the exchange on which the stock trades). This strategy would be considered more high-risk, compared to purchasing an ETF, which holds a group of stocks. This again comes down to the personal preference of the strategy the investor wishes to undertake.
Disclaimer:
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purposes only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceedings. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.
