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3 ETFs that could smash the FTSE 100 over the next decade

Edward Sheldon, CFA — Mon, 02 Jul 2018 15:15:07 +0000

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.

Technology

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.

Emerging markets

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.

Mid-caps

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.

The post 3 ETFs that could smash the FTSE 100 over the next decade appeared first on The Motley Fool UK.

Why I’d buy these 3 ETFs over the FTSE 100

Edward Sheldon, CFA — Sat, 23 Sep 2017 07:18:15 +0000

Investing through exchange-traded funds (ETF) is a great way of gaining exposure to the stock market. ETFs are easy to purchase, have low fees, and offer strong diversification benefits. FTSE 100 ETFs are popular choices among UK investors and that’s understandable, as they will provide exposure to a diversified portfolio of blue-chip names, such as Royal Dutch Shell, HSBC Holdings, Lloyds Banking Group and GlaxoSmithKline, with the click of a button.

However, if I was going to buy an ETF today with the intention of holding it for the long-term, there’s several other ETFs I would consider buying over the FTSE 100 variant. Here’s a look at three such ETFs offered by investment manager Vanguard.

Vanguard S&P 500 ETF

To diversify your portfolio properly, it’s a good idea to add international stocks to the mix, in my opinion. There are several reasons for this. The first is that international stock markets can perform differently at different times. For example, while the FTSE 100 returned 9.4% per year for the five years up until the end of August, the US’s S&P 500 index returned 14.3% per year in the same time period. That’s a fairly significant difference.

Secondly, the composition of the key US index, differs remarkably from the composition of the FTSE 100 index. For example, the top five stocks by market capitalisation in the FTSE 100 at the end of August were HSBC Holdings, British American Tobacco, Royal Dutch Shell A, BP and Royal Dutch Shell B. In short – banks, tobacco and oil.

However, turning to the S&P 500, the top five stocks at the end of August were Apple, Microsoft, Facebook, Amazon.com and Johnson & Johnson. That’s a much higher exposure to the fast-growing technology sector.

The Vanguard S&P 500 ETF (LSE: VUSA) could be an excellent way of gaining exposure to the S&P 500 index. Ongoing charges are just 0.07%.

Vanguard FTSE 250 ETF

Another growth ETF I’d buy would be a FTSE 250 one, thereby investing in the 250 largest companies, outside the FTSE 100. There’s some fantastic up-and-coming companies in this index, such as DS Smith, RPC Group and Aldermore Group, and that has facilitated a five-year index return to the end of August of 14.7% per year.

While you’d think that the mid-cap index would be riskier than its big brother, according to FTSE Russell data, the five-year volatility for the FTSE 250 was 9.9% vs 10% for the FTSE 100, suggesting that over the long term, risk was actually slightly lower.

A good choice here in my opinion is the Vanguard FTSE 250 ETF (LSE: VMID). Ongoing charges are 0.10%.

Vanguard Emerging Markets ETF

Image: Public domain

Lastly, I’d also look at investing a portion of my portfolio in the emerging markets. A good option could be the Vanguard Emerging Markets ETF (LSE: VFEM).

Emerging markets as a whole are growing at a rate significantly higher than most developed countries. Furthermore, emerging markets now contribute up to 60% of the world’s GDP, according to the International Monetary Fund. As a long-term investor, I would want to capitalise on this growth.

The Vanguard Emerging Markets ETF provides exposure to countries such as China, Taiwan, India and Brazil, and with a low ongoing charge of 0.25%, looks to be a good way to invest in these fast-growing economies.

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