The ASX exchange-traded fund (ETF) sector of the share market can be a fruitful place to find opportunities for diversification, dividend income and growth.
Some ETFs are known for being more growth-focused, such as the iShares S&P 500 ETF (ASX: IVV) or the Vanguard Diversified High Growth Index ETF (ASX: VDHG).
I donât mind the ETFs that are focused on the large ASX shares, such as Vanguard Australian Shares Index ETF (ASX: VAS) or the BetaShares Australia 200 ETF (ASX: A200). But I donât think they have a lot of growth potential because of the nature of large ASX bank shares and large ASX mining shares.
There are a group of ASX ETFs that could provide a mixture of solid dividend income and decent capital growth. Here Iâm going to tell you about two of them.
Betashares FTSE 100 ETF (ASX: F100)
The idea behind this ETF is that it tracks an index of 100 of the largest businesses that are trading on the London Stock Exchange.
While the ASX is heavily weighted to resources and banks, the F100 ETF has a more healthy split between the different sectors in my opinion. There are currently six sectors with a weighting of more than 10%: consumer staples (19.2%), financials (17.6%), energy (13.1%), healthcare (12.4%), materials (10.7%) and industrials (10.3%).
Investors may recognise some of the biggest 10 positions in the portfolio of AstraZeneca, Shell, HSBC, Unilever, BP, Diageo, British American Tobacco, GSK, Glencore and Rio Tinto.
BetaShares says that the ASX ETFâs distribution yield, which is based on the last 12 months of distributions, is around 3%. Thatâs not huge, but itâs more than double the dividend yield of the US shares-focused iShares S&P 500 ETF.
The ETF is delivering capital growth, though we can never know when volatility may hit. As we can see on the graph below, the Betashares FTSE 100 ETF has risen by over 11% in 2023 to date.
Australian Ex-20 Portfolio Diversifier ETF (ASX: EX20)
As the name suggests, this ASX ETF is invested in ASX share, but a key difference to ones like the VAS ETF is that it excludes the biggest 20 ASX shares and invests in the next 180 names. In other words, itâs not invested in names like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP) and CSL Limited (ASX: CSL).
What are the benefits of this? Firstly, the EX20 ETF reduces portfolio concentration to a few large banks and miners – it can enable diversification.
With this 180-name portfolio, I think it can deliver a bit more growth. Larger businesses are normally quite far along on their growth journey, whereas the smaller ones could have more growth potential.
As of 18 May 2023, these were the biggest 10 positions: Brambles Limited (ASX: BXB), South32 Ltd (ASX: S32), James Hardie Industries plc (ASX: JHX), Sonic Healthcare Ltd (ASX: SHL), Cochlear Limited (ASX: COH), Suncorp Group Ltd (ASX: SUN), Northern Star Resources Ltd (ASX: NST), Origin Energy Ltd (ASX: ORG), Scentre Group (ASX: SCG) and ResMed Inc (ASX: RMD).
Seeing as this article is about passive income, now letâs look at the most important part of the ASX ETF â the dividend yield. BetaShares said that the last 12 month distribution yield is 3.1%, or 3.8% when grossed-up for franking credits.
If the underlying EX20 ETFâs businesses can achieve attractive earnings growth over time, then it could mean that the dividends could grow at a faster pace.
The post 2 ASX ETFs I’d buy for dividend income appeared first on The Motley Fool Australia.
Should you invest $1,000 in Betashares Ftse100 Etf right now?
Before you consider Betashares Ftse100 Etf, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Betashares Ftse100 Etf wasn’t one of them.
The online investing service heâs run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
See The 5 Stocks
*Returns as of April 3 2023
(function() {
function setButtonColorDefaults(param, property, defaultValue) {
if( !param || !param.includes(‘#’)) {
var button = document.getElementsByClassName(“pitch-snippet”)[0].getElementsByClassName(“pitch-button”)[0];
button.style[property] = defaultValue;
}
}
setButtonColorDefaults(“#0095C8”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#0095C8”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);
})()
More reading
- Bought $7,000 of Northern Star shares five years ago? Hereâs how much passive income youâve earned
- Goldman Sachs says this ASX 100 share is a strong buy
- This is my no. 1 ASX mining share to buy right now
- Mike Tyson on investing
- The market has soured 20% on the A2 Milk share price. Is it a turnaround buy?
Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, Cochlear, and ResMed. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool Australia has recommended Cochlear, Sonic Healthcare, and iShares S&P 500 ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
from The Motley Fool Australia https://ift.tt/bzVoun7
Stock Pick 