Exchange-traded funds (ETFs) can be a great way to access the stock market. Not only do these passive ‘index funds’ provide exposure to a range of companies, but they’re also very cost-effective. In some cases, fees are less than 0.2% per year.
Here, I’m going to highlight some of my favourite ETFs for 2021. I think these index funds could help investors build a winning portfolio.
ETFs for 2021
As a UK investor, I think it’s really important to take a global approach to investing. The UK has some great companies. However, many of the world’s most dominant companies are listed internationally.
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One of my favourite ETFs for global equity exposure is the iShares Edge MSCI World Quality Factor UCITS ETF. It’s listed under tickers IWQU (USD) and IWFQ (GBP).
What’s unique about this ETF is that instead of just tracking the entire MSCI World (which contains about 1,600 companies), it provides exposure to a selection of high-quality companies within the index. Specifically, it invest in companies that:
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Demonstrate strong and stable earnings
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Have low debt levels
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Allocate a high percentage of company earnings to shareholders
This focus on quality can protect against downside risks. When the MSCI World index generated negative returns in 2015 and 2018, for example, this ETF outperformed. Meanwhile, it has been a solid performer over the last five years, returning 11.2% per year for the five years to 30 November versus 10.7% per year for the MSCI World.
Top holdings currently include Apple, Microsoft, Nike, Visa, Roche, and Nestle. Its ongoing charge is 0.30% per year.
I also like the US version of this ETF – the iShares Edge MSCI USA Quality Factor UCITS ETF. This provides exposure to large- and mid-cap US stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage). Companies in the top 10 holdings currently include Apple, Coca-Cola, Nike, Mastercard, and Johnson & Johnson. This ETF returned 13.4% per year for the five years to 30 November. Fees are just 0.15% per year.
A sustainable exchange-traded fund
Sustainable investing has become popular in recent years as investors have become more concerned about where their money is being invested. In 2020, flows into sustainable ETFs smashed records.
One sustainable ETF I hold in high regard is the iShares MSCI World SRI UCITS ETF. This index fund aims to provide access to the global markets through companies with outstanding environmental, social, and governance (ESG) ratings and minimal controversies. Specifically, it screens out companies involved in industries such as oil & gas, weapons, tobacco, and gambling.
Since its launch in October 2017, this ETF’s done well. For the year to 30 November, it returned 19.3%. For the three years to 30 November, it returned 12.45% per year.
Top holdings currently include Microsoft, Tesla, Procter & Gamble, and Nvidia. Fees are 0.2% per year.
A technology ETF for 2021
Finally, I remain bullish on the long-term prospects for the technology sector. I think it’s smart to have exposure to a pure-play tech ETF.
One of the best ways to gain exposure to the tech sector in my view is to invest in the iShares NASDAQ 100 UCITS ETF. This tracks non-financial stocks listed on the Nasdaq stock market. Its top holdings currently include Apple, Microsoft, and Amazon. Ongoing charges are 0.33% per year. I think this ETF should do well as technology plays an increasingly important role in our lives.
