Many investors make use of funds in their portfolios as a quick and easy way to invest in different markets around the world.
However, the fund universe can be a tricky place to navigate. There are thousands of different options all offering different investment strategies, fee structures, and levels of liquidity.
The universe has only become more complicated to navigate as the exchange-traded fund (ETF) market has exploded in size. ETFs have only been around since the mid-1990s, but they have completely turned the fund marketplace on its head.
ETF market Not only do ETFs tend to be cheaper than traditional investment funds, but because they’re traded on an exchange, you can buy and sell them just like ordinary shares. Non-ETF funds usually only let investors in at a daily or weekly pricing point.
ETFs are also highly flexible, which is giving rise to a whole sub-asset class that tracks non-traditional assets, such as gold or natural gas futures. There are also ETFs that offer exposure to the Vix Index, which is commonly referred to as the ‘fear gauge’. Some offer exposure to assets with a leverage ratio of three (for every 1% move in the underlying asset, the ETF will rise or fall by 3%). I should add that these instruments are only suitable for the most experienced investors.
With all these options available, how do you cut through the noise to find the market’s best ETF?
Well, today I’m going to highlight what I believe is the best related investment on the market at the moment, and it could be the only investment you (and I) will ever need.
Tracking the world My favourites ETF on the market today is the Vanguard FTSE All-World ETF (LSE: VWRL). This exchange-traded fund gives investors an instant global portfolio. At the time of writing, 52% of fund assets are invested in the United States, 6% in the UK, 8% in Japan, 3% in France, and the rest distributed around the world. Some of the world’s largest companies feature in the top 10 holdings, including Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL).
It has a dividend yield of 2.7% (paid quarterly) and a total cost to investors of 0.25% per annum, making the ETF one of the cheapest investment funds out there at the moment.
The one downside of the fund is that its base currency is US dollars, so investors are exposed to any fluctuation in the exchange rate between the US dollar and sterling. To solve this, the fund’s owners Vanguard have also put out a GBP version, where assets are hedged back to sterling. Apart from the fact that it trades in a different currency, the sterling fund is virtually the same.
After expenses, the fund has produced at a steady return for investors of 8.6% per annum since inception — a slow and steady return from some of the world’s best companies.
The bottom line So, if you are looking to build an instant portfolio with global diversification without all the effort of finding shares yourself, I really do think this could be the only ETF investment you will ever need. And because it is globally diversified, I believe your money should be protected in the event of a messy Brexit.
Rupert Hargreaves owns no share mentioned. Teresa Kersten, an employee of LinkedIn (NYSE:LNKD), a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Apple. The Motley Fool UK owns shares of Microsoft and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019