BetaShares Australian Ex-20 Portfolio Diversifier ETF (ASX: EX20) could be the best way to invest in ASX shares.
Why investing in ASX shares is great
ASX shares have been one of the best performing assets over the long term. Businesses have the ability to generate good returns, re-invest for growth and pay out a dividend.
Australian companies have the added bonus of franking credits which can boost the dividend income paid to shareholders.
Over the long term, ASX shares can produce better returns than cash or bonds and pay better dividends than international shares. We get to invest in the businesses that we (probably) know and perhaps use every week. You may feel a better connection to your service provider if you also own shares of CBA (ASX: CBA), Woolworths (ASX: WOW) or Telstra (ASX: TLS).
So why not just invest in the biggest ASX ETFs?
There are some great ETFs that Aussies can buy which focus on the ASX. ETFs like BetaShares Australia 200 ETF (ASX: A200) and Vanguard Australian Shares Index ETF (ASX: VAS) can give exposure to the ASX 200 or ASX 300 for a very cheap fee of 0.07% of 0.10% respectively.
However, both of those ETFs are dominated by CSL (ASX: CSL), the big four ASX banks and BHP (ASX: BHP). That’s not very diversified. It defeats one of the best reasons for picking an ETF – diversification.
But the ASX does have some great shares, they just don’t make up a large weighting of the ASX.
That’s why I think BetaShares Australian Ex-20 Portfolio Diversifier ETF could be a solid idea. As the name may suggest, it excludes the shares in the ASX 20. The ASX 20 aren’t terrible businesses, but they are big companies with not much growth potential.
BetaShares Australian Ex-20 Portfolio Diversifier ETF’s largest holdings are shares like: Fortescue Metals Group (ASX: FMG), Brambles (ASX: BXB), Fisher & Paykel Healthcare (ASX: FPH), Sonic Healthcare (ASX: SHL), A2 Milk (ASX: A2M), ASX (ASX: ASX), Ramsay Health Care (ASX: RHC), Cochlear (ASX: COH), Insurance Australia Group (ASX: IAG) and APA (ASX: APA).
These shares (and the other 170 or so) have the potential outperform the main ASX ETFs over the long term with the stronger growth characteristics.
BetaShares Australian Ex-20 Portfolio Diversifier ETF isn’t even that much more expensive. Its annual management fee is only 0.25% per year. That’s cheaper than nearly all the active fund managers out there. It has a solid dividend yield too, thanks to high yield shares like Fortescue, the ETF’s trailing partially franked dividend yield is 5.7%.
I would rather invest in this ETF over the A200 ETF or the VAS ETF. I think the ASX has a lot of quality growth shares, I just don’t feel that the ASX 20 provides that – which is why the EX20 ETF is an appealing way to passively invest in ASX shares.