We’re never left short of options when it comes to investing our money in something other than property, cars or watches, in the hope of a sizeable return. On one hand, you have the obvious route of investing in and trading shares, or you could ‘get with the times’ and try your hand at investing in cryptocurrencies. Or, for those who consider themselves to be newbies to the investing scene, or want to put their money into something with a lot less risk, there are ETFs.
What Is An ETF?
ETFs – or Exchange Traded Funds – are bought and sold in similar ways to stocks, in that they are traded on the major stock exchanges, such as the New York Stock Exchange or the Nasdaq. What makes them different from stock is that stock – or rather, the shares that collectively form stock – are individual ‘pieces’. ETFs on the other hand are, as their name implies, funds.
This means an ETF can be a collection of stocks, bonds, currencies and/or commodities, made up of any number and any combination of the above, ranging from tens all the way through to thousands of each.
They are similar in this regard to mutual funds, however, ETFs can be traded throughout the day, with their price continuously changing as a result. Mutual funds, meanwhile, are only traded at the based on their price at the end of each day.
What makes ETFs so popular – and especially appealing to new investors – is that they are passively managed. This means a fund manager simply needs to ensure each ETF they manage tracks or follows its specified stock index. One of the most popular stock market indexes is the American S&P 500 – which tracks the performance of 500 large companies (such as Apple, Microsoft, Amazon and Facebook) from various stock exchanges in the US.
How Do I Buy ETFs?
Because ETFs are traded in the same way as stock, you’ll need to use an online broker to make your transactions. Many brokers that offer stock trading should also offer ETF trading, and it’s worth knowing that different online brokers may charge handling, or brokerage, fees, so this is something you’ll need to look into and take into account before you part with any money.
The minimum investment fee can change from broker to broker too, and the markets that the broker invests in and tracks can differ as well. Some online brokers, such as Stake (a great option for beginner investors) only offers access to US stocks.
You may also want to check to see if your broker of choice offers a mobile application so that you can make trades on-the-go. It might not be a dealbreaker for some, but it could be a handy feature to have.
Best ETFs To Buy
Naturally, nobody wants to make a bad investment, so rather than listen to the advice of your kooky uncle who only appears at family gatherings, we’ll be bringing you the top picks of Zac Angove, Private Wealth Advisor at Seneca Financial Solutions, and his analysis on each one.
A Word From Zac
Despite being your biggest asset, your ability to earn money through time, known as your ‘human capital’, is widely underappreciated. The younger you are, chances are you will have substantially more ‘human capital’ than you do financial capital (cash, assets).
You might not realise it, but there is an ever-increasing threat to your biggest asset as companies develop technology to save costs and fix problems (that they previously paid people like you to fix!) Robotics, artificial intelligence, machine learning, and digitisation are negatively impacting your human capital balance. One way to offset or hedge this risk is to deploy some of your financial capital into technology investments.
Gaining exposure to these themes has historically been difficult but with the exchange trade funds (ETF’s) listed below, you could potentially benefit from these emerging trends in a low cost, transparent and diversified way.
Note: While there is an increasing range of ETF’s available on the ASX, the US exchanges offer a significantly more diverse range. The below ETF’s are available on the US exchanges
All figures in USD (1 USD = 1.30 AUD at time of publishing)
Invesco Dynamic Semiconductors ETF (PSI) USD $120.49, $276.78bn Market Cap
The brains of our computers. As technology continues to improve and expand, these chips will be in high demand. Artificial intelligence will act as a multiplier to these other four themes.
3D Printing ETF (PRNT) USD $40.10 $79bn Market Cap
The potential of 3D printers is starting to come to fruition in the manufacturing sector. Mill based manufacturing is succumbing to the efficiencies 3D printing provides. Top holdings include 3D systems corporation, Stratasys Ltd and SLM solutions AG.
ETFS Battery Tech & Lithium ETF (ACDC) USD $90.58, $86.5mn Market Cap
The impending shift from fossil fuels means energy storage is going to be in high demand. This ETF offers investors exposure to companies involved in the supply chain and production for battery technology and lithium mining.
ARK Genomic Revolution ETF (ARKG) USD $110.64, $16.85bn Market Cap
The convergence of DNA sequencing, artificial intelligence and Gene therapies are going to revolutionise how people make decisions around their health. Allowing doctors and scientists to catch diseases at stage 1, predict diseases before they start and potentially predict and edit their DNA sequencing.
Siren Nasdaq NexGen Economy ETF (BLCN) USD $42.25, $187.9bn Market Cap
BLCN is one of the first ETFs to focus on blockchain technology. Blockchain, and more specifically Bitcoin, is the reserve digital currency. This decentralised technology is too hard for governments to control and will at a minimum become the storage of wealth comparable to Gold.
This article is of a general nature only and does not consider your objectives, financial situation or needs. You should consider the appropriateness of the information in light of your objectives, financial situation and needs before acting on it and obtain copies of any relevant disclosure documents. Seneca Financial Solutions does not warrant the accuracy or reliability of the information in this report. Zac Angove, Seneca Financial Solutions, it’s Directors and its associated entities may have or had interests in companies mentioned. They may have or have had a relationship with or may provide or has provided investment banking, capital markets and/or other financial services to those companies mentioned.
Best ETFs FAQ
What is an ETF?
An ETF is an exchange-traded fund that is essentially a 'collection' of shares, bonds, commodities and/or currencies, that is traded in a similar way to individual stocks.
Do ETFs pay dividends?
Yes, but the ETF will only pay a dividend if stock held within the ETF you have invested in, pays dividends. Dividends are usually paid out on a quarterly basis.
What is the difference between an ETF and a mutual fund?
ETFs and mutual funds could be mistaken for one another, however, mutual funds are actively managed by investors, in the hope they will beat the market. However, mutual funds can only be traded at the end of the day when the price is set, ETFs, meanwhile can be traded throughout the day.