Building a balanced portfolio is essential for creating a strong and stable return over time. Investing in an exchange-traded fund (or ETF) can be a brilliant way for people to achieve this.
Diversification reduces an investor’s exposure to the risk of any single asset performing poorly. It can also reduce a portfolio’s volatility across different points of the economic cycle.
As an investor myself, I can achieve this by buying individual stocks. But I can also purchase an ETF. This way, I can spread my cash over a greater number of shares (and other asset classes like bonds and commodities).
This strategy can also help me reduce trading costs. Purchasing an ETF involves just one transaction fee, while buying multiple shares involves several.
A top FTSE stock
I think a balanced approach of buying individual companies and ETFs is the right way to go. I can reduce risk, while also giving myself a chance to make market-beating returns by buying particular shares.
If I had £20,000 to invest, I think Coca-Cola HBC (LSE:CCH) could be a great FTSE 100 stock to consider this July. Thanks to in-demand brands like Coke, Sprite and Fanta, the drinks bottler enjoys stable revenues at all points of the economic cycle.
But the business is far from boring. It has excellent growth opportunities too, thanks to its vast exposure to Eastern European and African developing markets. I’m also encouraged by its successful move into fast-growing categories like energy drinks.
Intense competition is a constant danger for fast-moving consumer goods like this. Yet City analysts still expect annual earnings to rise strongly over the next few years at least, beginning with a 26% jump in 2024.
As a result, Coca-Cola HBC shares currently trade on a price-to-earnings growth (PEG) ratio of 0.6. At below 1, this indicates that a share is undervalued. Right now, I reckon it could be one of the FTSE 100‘s best cheap shares to consider.
… and a great ETF
With a £20,000 investment, a good strategy could be to think about investing it equally in Coca-Cola HBC shares and an ETF. There are many funds to choose from today, but I think the iShares Core S&P 500 ETF (LSE:CSPX) may be one of the best.
As the name implies, this fund gives me exposure to all of the businesses that make up the S&P 500 index in the US. This has obvious benefits to anyone who focuses on UK shares and indices. It provides them with geographical diversification, as well as exposure to many different industries and companies.
This helps me to balance risk while also offering the potential to make massive long-term returns. iShares ETF has provided an average annual return of 12.92% over the past decade.
One potential drawback is the fund’s weighting of around 30% towards cyclical tech stocks. These could fall sharply in value if economic conditions worsen. Having said that, I still think that on balance this could be a great fund to think about holding today.
