An investment revolution has gathered pace in recent years, and private investors are reaping the benefit. Exchange traded funds (ETFs) are taking power away from fund managers and giving it to the people.
Power on
ETFs are low-cost index trackers that you can buy and sell quickly and easily like stocks and shares, with only stockbroker dealing fees and stamp duty to pay. They have no initial fees and rock bottom ongoing annual charges, ranging from 0.07% to 0.5%. This means you get to keep far more of your total investment returns, rather handing them to a fund manager.
Investors have got the message with more than $5trn now invested in some 7,000 ETFs from more than 300 providers, although three firms dominate: BlackRock’s iShares, Vanguard and State Street. You can use them to invest in almost any market, asset, region or commodity you wish.
Market return
ETFs make investing simple. You do not have to worry about your fund manager underperforming the market, as three quarters do every year. Instead, you get what the market is giving, minus charges. Which are minimal.
This will not suit everybody. Many investors enjoy building their own portfolio of stocks and shares to meet their needs, digging out unpolished diamonds and overlooked nuggets. Not everyone does, though. Some like to keep things simple and if this applies to you, I have a recommendation: Vanguard FTSE All-World UCITS ETF (LSE: VWRL).
What in the world
This ETF seeks to deliver long-term growth of capital by tracking the performance of the FTSE All-World Index, which follows large and mid-cap companies in developed and emerging markets, weighted by market capitalisation. It physically buys the underlying securities to build a representative sample and has $1.75bn under management. Ongoing charges total just 0.25% a year. Recent volatility could be a good time to build your position.
This fund is a one-stop portfolio giving you exposure to more than 3,000 leading global companies, with a top five holdings of Apple Inc, Microsoft Corp, Amazon.com, Facebook Inc and JP Morgan Chase & Co. Global investment trusts like these two do a similar job.
Global reach
The Vanguard FTSE All-World ETF is heavily weighted to the US with 50% invested in the world’s largest economy. Around 10% is invested in the eurozone, 8% in Japan, and 6% in both emerging Asia and the UK.
As a hugely diversified global tracker, you will not beat the market. However, when global markets grow, so does this fund, which is exactly what you want. In 2017, it returned 13.21%, according to Morning Star. In 2016, it grew a whopping 29.86%. In 2015, 2.54%. In 2014, 11.47% and in 2013, 21.36%. Where the world goes, this ETF will follow.
Power of one
Given its geographical breakdown, if Asia Pacific outpaces the US, you will not do so well. If the US tech giants flounder, so will this ETF. You might therefore want to balance it with, say, an emerging markets or smaller companies fund. But if you only want to buy one investment ever, this could be it.