Here at The Motley Fool, we encourage diversification in one’s portfolio. We’d urge investors to consider holding exchange-traded funds as well as listed companies. Here, some of our free-site writers share one that they have in their own Stocks and Shares ISA.
HSBC S&P 500 UCITS ETF
What it does: HSBC S&P 500 UCITS ETF tracks the performance of 500 of the largest companies listed on US stock exchanges.
By Royston Wild. Billionaire investor Warren Buffett has long championed S&P 500 index funds as a great way for investors to create wealth. I chose to do so earlier this month by opening a position in the HSBC S&P 500 UCITS ETF (LSE:HSPX).
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Having exposure to hundreds of different companies helps me to spread risk. This fund’s focus on large stocks with significant competitive advantages (also known as economic moats) provides me with extra protection, too.
I also like the solid exposure to tech stocks that this fund provides. Almost 29% of its capital is sunk into the information technology sector, which in turn gives me an opportunity to capitalise on themes like artificial intelligence, cybersecurity, cloud computing and e-commerce.
As a UK investor this ETF leaves me exposed to currency risk. However, the excellent long-term return that S&P 500 investors have enjoyed still make this an attractive financial instrument to hold, at least in my opinion.
The S&P 500 has risen a stunning 2,674% in value during the past 40 years. No wonder Mr Buffett is a fan of funds that track the index, then. Remember that past performance is not a reliable indicator of future returns.
Royston Wild owns HSBC S&P 500 UCITS ETF.
Invesco EQQQ Nasdaq 100 ETF
What it does: This ETF aims to track the total return performance of the Nasdaq 100 index, which is the largest 100 companies listed on the Nasdaq stock exchange.
By Harshil Patel. I own the Invesco EQQQ Nasdaq 100 ETF (LSE:EQQQ) to gain access to some of the largest companies in the world, at low cost. Its ongoing annual charge is just 0.3% and its top holdings include Apple, Microsoft and Amazon.
The Nasdaq 100 is typically seen as a technology-focused index. Indeed, around 50% of stocks are in this sector. But I like that it also includes a variety of other industries too.
For instance, it allows me to own high-quality non-technology shares such as Costco Wholesale, and PepsiCo.
Note that 46% of this Nasdaq100 ETF is concentrated in its largest 10 stocks. This is great when these companies are growing, but could be a risk if they face a significant challenge at the same time.
Given the rise of tech giants, this ETF has performed very well in my opinion. Over the past 10 years, it has managed to grow by 17% a year. That would have turned a £20,000 Stocks and Shares ISA into a whopping £96,136.
Harshil Patel owns shares in Invesco EQQQ Nasdaq 100 ETF.
iShares Edge MSCI World Quality Factor ETF
What it does: The iShares Edge MSCI World Quality Factor ETF seeks to track the performance of an index composed of stocks with strong and stable earnings.
By Paul Summers. Just like Warren Buffett and the UK’s own Terry Smith, I’m a huge fan of ‘quality’ companies that possess strong brands, generate consistent profits and boast robust finances.
Given this, it’s no surprise that a good chunk of the money in my ISA is invested in the iShares Edge MSCI World Quality Factor ETF (LSE: IWFQ)
Made up of 301 stocks including credit firm Visa and pharma giant Eli Lilly, this liquid (easily traded) fund delivered a total return of 25.7% in 2023. In five years, it’s up over 70%. As I type, that’s more than 8 times what the FTSE 100 has achieved (dividends excluded).
This easily justifies the ongoing charge of 0.3%, especially when compared to actively managed funds with the same objective.
My only worry is that having 70% of the portfolio invested in US stocks could come back to bite me.
Paul Summers owns shares in iShares Edge MSCI World Quality Factor ETF
L&G Cyber Security UCITS ETF
What it does: L&G Cyber Security ETF is made up of stocks from the cybersecurity industry. It tracks the ISE Cyber Security UCITS Index.
By Ben McPoland. Hardly a week goes by nowadays without another major hacking incident. In recent times there have been cyber attacks on many institutions and businesses, including the British Library, Boots, the BBC and Royal Mail.
Unfortunately, this could be the tip of a very large and unpleasant iceberg, especially as AI continues developing. So it’s little wonder research firm McKinsey thinks cybersecurity should one day become a $1.5trn industry.
This is why I hold the L&G Cyber Security ETF (LSE: ISPY) in my Stocks and Shares ISA. It contains all the major players in the industry, including CrowdStrike Holdings, SentinelOne and Palo Alto Networks.
The thing I like here is that this gives me broad-based exposure to what can be a complex and rapidly-evolving industry. For me, that removes a lot of the stress and hassle.
One issue I’d highlight is that many of these stocks had a great run last year, and this was reflected in the ETF’s gain of 35%. Consequently, valuations might be getting a little stretched, which is worth bearing in mind.
There is a 0.69% ongoing charge.
Ben McPoland owns shares in CrowdStrike Holdings and L&G Cyber Security UCITS ETF.
