Stock-picking isn’t for everyone and it doesn’t need to be. Over the last decade or so, exchange-traded funds (ETFs) have become the go-to destination for UK investors who don’t have the desire to buy individual company shares.
After all, why bother researching all the companies in, say, the FTSE 100 when an investor can simply buy a cheap fund that passively tracks the return of the index itself. Those who did just this back in March 2020 will have done rather well since.
FTSE 100: On a roll
From the depths of the market meltdown to last Friday’s close, the FTSE 100 has climbed back a stonking 35% in value. That’s a superb return for very little work as far as ETF holders are concerned.
This strong recovery isn’t hard to fathom either. The emergence and gradual rollout of several vaccines was a shot in the arm for market sentiment. A resolution to the bitter trade negotiations between the UK and the EU at the end of 2020 likely provided further positive momentum.
Now, I think an ETF tracking the FTSE 100 remains a good investment. It’s certainly a better idea than sticking savings in a Cash ISA! Since I’m looking to really grow my money over the next decade or so however, I’ve decided to track a group of companies that could generate an even better return.
Top ETF pick
My top passive investing pick for 2021 is WisdomTree Battery Solutions UCITS ETF (LSE: CHRG). Thanks to the rapidly growing demand for electric cars and energy storage, I see getting at least some exposure to this megatrend as vital for any investor with many years left in their stock market journey.
Why this particular fund? There are a few reasons. First, there’s the size of the portfolio. With 95 holdings, this ETF isn’t too reliant on just a few companies succeeding nor too large to completely dilute the contribution of those stocks that really do perform.
Aside from this, WisdomTree’s fund also offers good geographical diversification across 19 countries. Almost 30% of its holdings are based in China and 15% from Japan. Only 22% or so are listed in the arguably-overvalued US market.
The cherry on the cake for me is the ongoing fee of 0.4%. That may look a lot compared to the typical 0.07% charged by a FTSE 100 tracker but I consider it good value for tapping into this growth story. It’s also slightly cheaper than the only other ETF currently tracking this trend that I could find — the L&G Battery Value-Chain UCITS ETF.
Buyer beware
Of course, nothing is a sure thing when it comes to investing. After such a strong run in green energy, electric car and battery-related stocks in recent months, there remains a very real possibility that we could see some profit-taking in 2021. As such, this fund certainly has a chance of underperforming the FTSE 100 for a while.
As a long-term investor however, this doesn’t concern me. What’s more important is that I look to future proof my portfolio by buying into promising trends when they are in their infancy. The FTSE 100 might contain some great businesses but I just can’t see these growing at a similar clip to those in the battery space.
It could be a bumpy ride, but I’m optimistic that my eventual returns will be worth it.
