Investors big and small need to look beyond the Australian sharemarket for high returns. Research house Lonsec says a reduction in the expected performance of Australian equities, the reduced risk and return benefit offered by domestic shares relative to global shares, as well as the diversification benefits achievable through a global allocation mean a higher global allocation would be beneficial.
“Australian equities represent only a very small part of the global equity market capitalisation and are predominately concentrated in the financials, energy and materials sectors,” Lukasz de Pourbaix, chief investment officer at Lonsec. “So it is important that investors look abroad to maximise the benefits from diversification and achieve a smoother return outcome over the long term.”
Small-time investors need not panic. The exchange-traded fund (ETF) market is booming with an ever-growing range of low-cost investment options to add a little flavour to your portfolio. For as little as $500, you can get access to markets around the world including the Asia Pacific region, Europe, China, Japan and the US.
With the help of Morningstar, Money has tracked down the best-performing ETF, ranked by three-year returns to September 30, 2016, in six different global markets.
- Asia Pacific: iShares Asia 50 ETF (ASX:IAA)
iShares’ Asia 50 ETF provides shareholders with access to 50 of the largest Asia stocks in one fund. It is designed to measure the performance of companies listed in China, Hong Kong, Macau, Singapore, South Korea and Taiwan. It is invested primarily in financials and technology companies (including Samsung). It has been around since 2007 and tracks the S&P Asia 50 index. Its three-year return is 11.5%pa and has an annual fee of 0.5%. The price is $65.43 per share.
- Europe: iShares Europe ETF (ASX: IEU)
If you’re keen on investing in European, iShares Europe ETF will give you exposure to a large range of European companies. The fund tracks the S&P Europe 350 index and is primarily exposed to equities in the United Kingdom, France, Switzerland and Germany. Its heaviest weightings are in financials, consumer staples (including Nestle SA) and healthcare. It has a three-year return of 6.1%pa and attracts a fee of 0.6%pa. IEU is $50.42 per share.
- China: iShares China Large-Cap ETF (ASX:IZZ)
Invest in one of the biggest economies in the world. iShares’ China Large-Cap ETF gives investors exposure to 50 large Chinese companies that trade on the Hong Kong stock exchange. Established in 2004, it tracks the FTSE China 50 index. It is invested primarily in financials (48%) and energy (13%). Its three-year return is 9.6%pa and its annual fee is 0.74%. IZZ is $50.13 per share.
- Japan: iShares MSCI Japan ETF (ASX:IJP)
If you want to get amongst the buzz coming out of Japan, the iShares MSCI Japan ETF can provide you with exposure to a variety of large- and mid-sized Japanese companies. The fund tracks the MSCI Japan index, which consists of stocks primarily traded on the Tokyo stock exchange. This ETF covers around 85% of the Japanese stockmarket and is primarily invested in consumer discretionary (cars and entertainment companies), industrials and financials. Companies include Toyota (5%), Mitsubishi, Honda and Sony. In its 20th year this year, the fund has an average three-year return of 9.8%pa and attracts a fee of 0.48%pa. IJP shares are listed as $16.45 per share.
- USA: iShares S&P 500 (ASX:IVV)
Got a good feeling about the American economy? The iShares S&P 500 ETF can give you exposure to large, established US companies. The fund tracks the S&P 500 index which comprises of 80% of available market cap. The fund is primarily invested in information and technology companies (including Apple and Microsoft), healthcare and financials. Established in 2000, the ETF has an average three-year return of 18.1%pa and attracts a low fee of 0.04%pa. IVV shares are currently listed as $283.57 per share.
The world is your oyster, and if you’re looking for a bit of everything, SPDR’s S&P World ex Australia ETFs can give you exposure to stocks from around the world. The fund tracks the S&P Developed ex Australia LargeMidCap AUD index, which includes stocks from 25 developed markets. It is heavily exposed to US (59%), Japanese and UK markets, and is primarily invested in information and technology companies, financials, consumer discretionary and healthcare. Investors can select a hedged option. The average three-year return for the hedged version is 9.25%pa, while the unhedged option returned 12.9%pa. The fee is 0.35%pa and 0.30%pa respectively. WXHG shares are currently listed as $18.35 per share, while WXOZ is listed at $23.45 per share.
Share prices as at October 25, 2016.