In this piece, we explore how to start investing internationally through ETFs. We also look at the difference between index, thematic and exotic ETFs and the impact these can have on your portfolio.
While Australian and International markets have scores of companies producing spectacular returns, stock picking is outside the realm of possibility for many investors. Instead, Exchange Traded Funds (ETFs) provide access to a basket of stocks managed by professional investors. ETFs can be a great way to access an international market through index ETFs, thematic ETFs and exotic ETFs. It is important to understand how to buy them, they are different and what to look for.
ETFs allow you to buy the Index. It’s the straightforward investing advice advocated for long term performance. What exactly does an index ETF do?
Well, switching on the morning news, you may hear how the S&P500 or Nasdaq performed. They are both indexes, a basket of the biggest companies in America. An ETF tracks those indexes by buying all the stocks in that basket. Instead of purchasing and balancing hundreds of individual stocks, an ETF does all the work wrapped into one holding.
The S&P500 is up over 200%, while the Nasdaq 100 is up almost 500% over the last 10 years. Buying the ETF would have exposed you to such returns. In fact, in the previous 10 years, no country’s stock index has returned a return greater than America’s S&P500.
Some investors seek exposure to more specific industries. There’s an ETF for that too. While indexes are broad and all-encompassing, stocks can be classified into any of 150 different sub-industries.
For example, news has spread over the last month of a semiconductor shortage. As such, the semiconductor sector, represented by $SOX, has been rising. Investors are taking advantage by buying semiconductor ETFs. This is specific exposure provided by a sub-sector ETF.
In some instances, stocks may not belong to a specific sub-industry but adhere to a theme. Sustainability and marijuana are both themes that have enjoyed a run in the last couple of years. Again, ETFs exist to tackle such themes.
ARK has become an incredibly popular fund by issuing exclusively thematic ETFs. 32% of all ETF trades on Stake in 2021 have been in ARK products. Not only do investors agree with the thematic narratives, but they’re also buying into the performance. $ARKK, the innovation fund, $ARKG, the genomic revolution fund, and $ARKF, the fintech fund, all returned well over 100% in 2020.
It’s not only stocks that belong in an ETF. The beauty of the American markets is the depth of their product offering. In some instances, ETFs provide exposure to derivatives like futures or alternative investments.
Trade things like volatility or hold a portfolio of bonds all through exchange-traded equities. While certain leveraged products are recommended for more sophisticated investors, Stake traders can access some of the same tools as big institutional investors. Looking to short the US market? There’s an ETF for that (SH). Want to leverage your returns on the FANG stocks? You guessed it. There’s an ETF for that (FNGU).
With so many products available to its investors, an ETF is sure to exist to suit your portfolio needs. Some providers, such as Stake, allow you to use a search function to find ETFs based on themes, sectors, countries or issuer.
This article was reviewed by our Content Producer Marissa Hayden before it was updated, as part of our fact-checking process.
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