FTSE 100 exchange-traded funds (ETFs) are popular among UK investors. Yet, over the long term, returns from the UK’s large-cap index have not been outstanding. Many of the largest companies in the footsie have struggled for growth in recent years, resulting in rather lacklustre returns for investors. For example, for the five years to the end of May, the index delivered total returns of around 7.1% per year. Sure, that’s not a bad return, but is it high enough to compensate for the risks of investing in the stock market?
If you’re aiming to generate high returns over the next decade, it could pay to diversify your portfolio outside the FTSE 100. Here’s a look at three ETFs that could potentially generate strong returns over the next 10 years.
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If you’re looking to capitalise on advances in technology, take a look at the ROBO Global Robotics and Automation GO UCITS ETF (LSE: ROBG). This ETF tracks an index of companies that are involved in the robotics industry. Over the last three years, it’s returned nearly 80%.
Robotics is not a new field, but robot technology has advanced significantly in recent years and looking ahead, the industry has the potential to grow at an exponential rate. Robots are now significantly more intelligent than they were in the recent past and today’s robots can perform sophisticated tasks across a wide range of industries.
Already, many companies are employing the technology to enhance productivity. Amazon, for example, uses a large number of bots in its warehouses. By 2030, up to a third of UK jobs could be done by robots, according to consultancy firm PricewaterhouseCoopers. As such, now could be a good time to invest in the sector, while it’s still in its infancy.
But do note that an ETF of this kind is higher risk than a FTSE 100 ETF. Therefore, it may not be suitable for all investors.
One ETF that looks to offer excellent exposure to fast-growing economies is the Vanguard FTSE Emerging Markets UCITS Fund (LSE: VFEM).
It specialises in a high-growth area that really could be worth considering if you’re looking for strong long-term returns: the world’s emerging markets. They are home to 80% of the world’s population and are growing at around twice the pace of developed markets. From a long-term investment perspective, there’s significant appeal.
Vanguard tracks an index of large and mid-cap companies in countries across Asia, Africa, Latin America and Europe. It currently holds over 1,000 stocks with strong exposure to China, Taiwan and India. It could be a rewarding investment for those with a long-term mindset.
Lastly, if the ETFs listed above are too adventurous for you, consider the Vanguard FTSE 250 UCITS ETF (LSE: VMID). This ETF is UK-focused, but instead of tracking large-cap companies, it tracks the largest 250 stocks outside the FTSE 100.
The FTSE 250 is home to many fast-growing companies, and as a result, the index has historically generated excellent long-term returns for investors. For example, for the five years to the end of May, investors enjoyed returns of 10.7% per year. That’s a 50% higher return than the FTSE 100 each year.
For those who prefer to invest in the UK, yet would like a little more growth over the long term, VMID could be a good UK-focused play.