Stealthy Wealth - My Favourite ETF

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Our friend from Stealthy Wealth talks about his favourite ETF at the moment and why.

When it comes to investing, you can make it as simple or as complicated as you like.

While some might want you to believe that you need a fund that can manage the systemic macro risks of yield inversion via underweight bond exposure, which can be carefully monitored to ensure inversely correlated equity returns from emerging markets, offset by the yield out of REIT exposure to the Asia Pacific region; for the long term investor it can be as simple as picking a single well diversified ETF and then simply sitting back and waiting.

There is a lot to be said about picking a single globally diversified ETF – you get a huge amount of diversification across geographies, industries, and currencies, all in a single, easy to understand product. And of course, the other advantage of passive ETs is that the poor performers automatically get booted, and the companies which perform, or those involved in up and coming industries, automatically get up-weighted, without you needing to lift a finger.

In addition, by going with a single Global ETF, decisions about which country, sector and companies to invest in is all taken care of for you. There’s no need to keep tabs on global economics, politics and currencies.

My Favourite ETF

This simple approach to investing makes it a lot easier for me to pick a favourite ETF. I now just need to look at the broad global ETF options, and I don’t need to worry about any country or sector specific ones.

My shortlist now becomes:

  1. Ashburton Global 1200 Equity Fund of Funds ETF
  2. Satrix MSCI World
  3. 1nvest MSCI World ETF
  4. Sygnia Itrix MSCI World

Now to be honest, there is not much to choose between these – each of them invest in multiple companies (more than 1000) across multiple sectors, and in multiple countries (including the USA, Japan, UK, France and Canada). In other words, each of them allow you to take advantage of the only free lunch in investing – diversification.

But the point of this article is to pick a winner, and so I go to the only major distinguishing feature between these 4 options – cost.

Now all of these funds are pretty cheap – the most expensive Total Expense Ratio is 0.69%.

But the fund with the lowest TER, and my number one choice when it comes to long term investing, is the Satrix MSCI World, with a TER of just 0.35%.

Easy to understand, hugely diversified, dirt cheap, and with no risk of underperformance – what more could you ask for in a long term investment?

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Background: Exchange-traded funds (ETFs)

Exchange-traded funds (ETFs) are passively managed investment funds that track the performance of a basket of pre-determined assets. They are traded the same way as shares and the main difference is that whereas one share gives exposure to one company, an ETF gives exposure to numerous companies in a single transaction. ETFs can be traded through your broker in the same way as shares, say, on the EasyEquities platform. In addition, they qualify for the tax-free savings account, where both capital and income gains accumulate tax free.

Benefits of ETFs

  • Gain instant exposure to various underlying shares or bonds in one transaction
  • They diversify risk because a single ETF holds various shares
  • They are cost-effective
  • They are liquid – it is usually easy to find a buyer or seller and they trade just like shares
  • High transparency through daily published index constituents
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