Tag: Motley Fool

The Megaport Ltd (ASX: MP1) share price is on fire on Tuesday morning.

In early trade, the elasticity connectivity and network services interconnection provider’s shares are up 17% to $11.48.

Why is the Megaport share price rocketing?

Investors have been buying the company’s shares this morning following the release of its quarterly update.

For the three months ended 31 December, Megaport reported total revenue of $48.6 million. This was an increase of 5% quarter on quarter and 31% year on year. This was driven by continued growth in customers and total services across all regions.

It was a similar story for its annual recurring revenue (ARR), which stood at $191.7 million at the end of the second quarter. This is up 1% quarter on quarter and approximately 27% year on year.

Management notes that its growth would have been stronger but was negatively impacted by significant foreign exchange headwinds from a strengthening Australian dollar. Underlying ARR excluding the impact of foreign exchange grew $7.6 million or 4% in the quarter.

Pleasingly, a strong turnaround in profitability while still investing in growth saw Megaport deliver positive EBITDA of $15.1 million for the quarter.

And while this is flat quarter on quarter, that’s because it reflects the increase in expenditure to reignite its go-to-market engine. This includes additional costs for sales, marketing and customer success staff, events, marketing and travel, offset by the growth in revenue.

On an annual basis, Megaport’s EBITDA was up $12.7 million or 500%+ from $2.4 million in the prior corresponding period.

Another positive that is giving the Megaport share price a boost is its cash flow. Megaport generated positive net cash flow of $6.9 million, which is up 23% quarter on quarter and by $18 million year on year.

This left the company with a cash balance of $62.5 million, which is an increase of $7.3 million since the end of September.

Business update

Management also provided investors with a few comments in relation to how the business is performing. It said:

The investment in our go-to-market (GTM) engine to drive future top-line growth is continuing, with North American Sales team hiring now complete and all roles “in seat”. […] With the team now successfully built out, focus has shifted towards improving the effectiveness of the GTM engine. This includes optimising lead generation, nurturing the pipeline of opportunities, and simplifying and elevating both the sales process and GTM operating models and tools.

In addition, the company’s Global WAN as a Service is starting to generate meaningful revenue. It said:

Our focus on delivering Global WAN as a Service is gaining traction with customers, as evidenced by a three-year agreement signed with a major US healthcare provider. With operations spanning multiple US states, this project enabled the customer to overhaul their IT infrastructure to connect eight data centres, modernise their point-to-point connectivity, and deliver diversity at the port level. This Global WAN solution enabled a significantly larger deal size, generating $1.4M in ARR and $4.2M in total contract value.

The Megaport share price is up 50% over the last 12 months.

The post Why is the Megaport share price rocketing 17% today? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Tuesday
• Here are the top 10 ASX 200 shares today
• Are ASX growth shares back? How these fundies delivered over 20% upside in 2023
• Here are the top 10 ASX 200 shares today
• Brokers say these ASX 200 growth shares can rise 25% to 30%

Motley Fool contributor James Mickleboro 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 Megaport. The Motley Fool Australia has recommended Megaport. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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ASX dividend shares are a great place to find strong passive income. Businesses with a high dividend yield or a history of dividend reliability can be very attractive investments for income-seekers.

We don’t need a $1 million portfolio to start bringing in good amounts of cash. In fact, dividends can potentially flow from a $3,000 investment in just two stocks, which I’ll outline below.

Brickworks Limited (ASX: BKW)

Brickworks is the largest brickmaker in Australia, it’s also involved in the production of paving, masonry, cement, roofing and specialised building systems. The company is a large brickmaker in the US.

This company hasn’t cut its dividend for almost 50 years, which is an extraordinary record of consistency and resilience for investors. It has also increased its dividend each year since 2014, so this year, it will be a decade of growth if the payout increases.

How has a brickmaker managed to achieve this record?

I’d put it down to two of the ASX dividend share’s assets – its large shareholding of investment house Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and its property holdings.

Soul Patts owns a diversified portfolio of assets which provides balance and stability to the cyclical building products earnings. Over time, Soul Patts has provided a growing dividend and capital growth for Brickworks.

Brickworks owns a lot of land, some of which is used by and connected to its building product manufacturing. It also regularly sells excess land into a joint property trust which builds large warehouses, mainly used for logistics, on the land.

Completing those warehouses unlocks rental cash flow and it results in a development profit because of an increase in the value of the land.

It has a trailing grossed-up dividend yield of 3.2%.

Healthco Healthcare and Wellness REIT (ASX: HCW)

As the name suggests, this is a real estate investment trust (REIT) that is invested in healthcare and wellness buildings. The business aims to provide exposure to a diversified portfolio underpinned by healthcare sector megatrends. It’s also targeting “stable and growing distributions, long-term capital growth and positive environmental and social impact.”

The tailwinds include an ageing population with higher rates of spending per person, growing government spending on health and social welfare services, and technological improvements.

The ASX dividend share’s 36 properties have an occupancy rate of 99% with a weighted average lease expiry (WALE) of 12 years.

The business can grow from both rental growth and its future development pipeline – more properties means more rental profits, which can lead to bigger distributions.

It’s expecting to generate 8 cents of funds from operations (FFO) (rental profit) per unit in FY24, and pay that out as a distribution, amounting to a yield of 6.25% for FY24.

The post 2 excellent ASX dividend shares I’d buy with $3,000 appeared first on The Motley Fool Australia.

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More reading

• Are Brickworks or Soul Patts shares a better ASX buy? Here’s my take
• Brokers name 3 ASX dividend shares to buy now
• Own Brickworks shares? Here’s how much you’ve been paid in dividends since COVID-19!
• Brokers name 3 ASX dividend shares to buy now
• 1 ASX dividend stock down 40% to buy right now

Motley Fool contributor Tristan Harrison has positions in Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Woolworths Group Ltd (ASX: WOW) shares were out of form on Tuesday.

That retail giant’s shares edged lower after investors gave a lukewarm response to a trading update.

The team at Goldman Sachs has been looking through the update and has given its verdict on the company’s shares.

What is Goldman saying about Woolworths shares?

Goldman was relatively pleased with the company’s update, noting that a weak performance in New Zealand has been offset by a stronger than expected performance in Australia. It said:

Whilst we expect that the NZ business to take longer for a turnaround (FY26 EBIT of A$196mn, vs FY19 of A$277mn), we believe that the AU Foods business continues to show better than expected strength with a combination of better-than-market growth in sales and EBIT margin expansion. In 1H24, for AU Foods, we forecast strong sales growth of 6% and 5.1% EBIT margin (+26bps yoy). Our FY24 group EBIT forecast is A$3,335mn, +7% yoy. In contrast to COL, we forecast 1H24 Food sales +5% and EBIT margin of 4.6%, -46pct yoy, and we expect the quality gap to further expand from prior years.

What about returns?

While Goldman has trimmed its valuation slightly, it is still expecting strong returns from Woolworths shares over the next 12 months.

According to the note, the broker has retained its conviction buy rating with a new $42.30 price target (from $43.30).

Based on the current Woolworths share price of $36.19, this implies almost 17% upside for investors between now and this time next year.

But the returns won’t stop there. Goldman is forecasting a fully franked 3.2% dividend yield in FY 2024.

If we add this into the equation, the total potential return stretches to a very attractive 20%. This is approximately double the historical market return.

The post How big could the 12-month return be on Woolworths shares? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Tuesday
• Woolworths share price falls on $1.5b impairment news
• The pros and cons of buying Woolworths shares right now
• 3 world-class ASX retirement shares to buy now
• At 20x earnings and a 4% yield, surely I can’t ignore this ASX 200 stock?

Motley Fool contributor James Mickleboro 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 Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Having a few ASX 200 blue chip shares in your portfolio is usually a good idea.

But which ones offer strong potential returns for investors right now?

Two that Goldman Sachs is tipping to rise materially from current levels are listed below. Here’s what the broker is saying about them:

Qantas Airways Limited (ASX: QAN)

The first ASX 200 blue chip share to look at is airline operator Qantas.

Goldman believes that the market is undervaluing the company’s shares, especially given how its earnings capacity has increased materially since pre-COVID times. The broker explains:

Notwithstanding a decline in unit revenues (and group capacity still at 95% of pre-COVID) our estimated FY24e EPS sits ~70% above pre-COVID levels. Despite this, QAN’s market capitalisation and EV are 17% and 24% lower than pre-COVID levels. We acknowledge broader macro uncertainty at this point in the cycle, but believe the current share price does not reflect the group’s improved earnings capacity. […] We believe the stock is not even pricing in a ‘generic’ recovery, let alone improved earnings capacity.

Goldman has a conviction buy rating and $8.25 price target on its shares. This implies potential upside of 48% for investors.

Xero Limited (ASX: XRO)

Another ASX 200 blue chip share that Goldman Sachs rates as a buy is cloud accounting platform provider Xero.

It likes the company due to its significant growth opportunity in a market estimated to comprise over 100 million small to medium sized businesses globally. The broker also sees now as an attractive entry point for investors. It said:

We see Xero as very well-placed to take advantage of the digitisation of SMBs globally, driven by compelling efficiency benefits and regulatory tailwinds, with >100mn SMBs worldwide representing a >NZ$76bn TAM. Given the company’s pivot to profitable growth and corresponding faster earnings ramp, we see an attractive entry point into a global growth story with Xero our preferred large-cap technology name in ANZ – we are Buy rated.

Goldman has a buy rating and $141.00 price target on its shares. This suggests potential upside of almost 30% from current levels.

The post These ASX 200 blue chip shares can rise 30% to ~50% appeared first on The Motley Fool Australia.

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More reading

• Are ASX growth shares back? How these fundies delivered over 20% upside in 2023
• Here’s how I’m targeting a generous ASX passive income in retirement!
• Here are 10 ASX shares I’d buy in 2024
• Here’s how the ASX 200 market sectors stacked up this week
• Here are the top 10 ASX 200 shares today

Motley Fool contributor James Mickleboro has positions in Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you’re seeking an easy way to invest your hard-earned money, then exchange traded funds (ETFs) could be the answer.

But which ETFs could be top options in February?

Listed below are three excellent ETFs that could be worth considering. Here’s what you need to know about them:

BetaShares NASDAQ 100 ETF (ASX: NDQ)

The BetaShares NASDAQ 100 ETF could be an ASX ETF to buy in February. It is one of the most popular funds out there and it isn’t hard to see why. The BetaShares NASDAQ 100 ETF gives you easy access to many of the biggest companies in the world. These are household names and provide services that many of us use on a daily basis. This includes search engines, social media platforms, mobile phones, coffee stores, streaming services, and online shops.

Betashares Global Quality Leaders ETF (ASX: QLTY)

Another ASX ETF to consider buying in February is also from Betashares. It is the Betashares Global Quality Leaders ETF, which last year was recommended by the fund manager’s chief economist, David Bassanese. This ETF gives investors access to a portfolio of approximately 150 global companies that rank highly on four quality metrics. This means that you are only investing in the very best companies that the world has to offer.

VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT)

Finally, we have an offering from VanEck to consider. The VanEck Vectors Morningstar Wide Moat ETF could be a great option for any investors that want to follow in the footsteps of Warren Buffett. When the Oracle of Omaha invests in a company, he looks for wide moats (sustainable competitive advantages) and fair valuations. This ETF pulls together around 40 stocks that boast these qualities.

The post 3 excellent ASX ETFs to buy and hold in February appeared first on The Motley Fool Australia.

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More reading

• 2 ASX shares I’d buy for my child for long-term growth
• Got $5,000? These are 2 of the best ASX growth stocks to buy right now
• Here are 10 ASX shares I’d buy in 2024
• How I’d create investment cash flow in retirement from ASX ETFs
• Want $1 million in retirement? 3 ASX shares I think could make it happen

Motley Fool contributor James Mickleboro has positions in BetaShares Nasdaq 100 ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended BetaShares Nasdaq 100 ETF. The Motley Fool Australia has positions in and has recommended BetaShares Nasdaq 100 ETF. The Motley Fool Australia has recommended VanEck Morningstar Wide Moat ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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There are plenty of ASX 300 dividend shares to choose from on the Australian share market.

Three that brokers believe are buys are listed below. Here’s what they are saying about them:

Accent Group Ltd (ASX: AX1)

Over at Bell Potter, its analysts think investors should be snapping up the shares of footwear-focused retailer Accent.

Its analysts expect the company to continue to perform positively due to “continuing casual footwear trends and as sports, fitness & wellness related spending remains a priority.”

The broker expects this to underpin fully franked dividends per share of 12 cents in FY 2024 and then 14.1 cents in FY 2025. Based on the latest Accent share price of $2.09, this represents dividend yields of 5.75% and 6.75%, respectively.

Bell Potter currently has a buy rating and $2.50 price target on its shares.

HomeCo Daily Needs REIT (ASX: HDN)

Another ASX 300 dividend share that has been given the thumbs up by brokers is HomeCo Daily Needs. It is a property company with a focus on neighbourhood retail, large format retail, and health and services.

Morgans is positive on the company and is expecting some very big dividend yields in the coming years.

For example, it is forecasting dividends per share of 8.3 cents in FY 2024 and then 8.5 cents in FY 2025. Based on the current HomeCo Daily Needs share price of $1.20, this will mean yields of 6.9% and 7.1%, respectively.

It has an add rating and a $1.50 price target on its shares.

Westpac Banking Corp (ASX: WBC)

A final ASX 300 dividend share that could be a buy according to brokers is Westpac.

Ord Minnett sees a lot of value in the banking giant’s shares at present. It also expects some juicy dividend yields for income investors.

The broker is forecasting fully franked dividends of 145 cents per share in FY 2024 and then 151 cents per share in FY 2025. Based on the current Westpac share price of $23.93, this will mean dividend yields of 6.1% and 6.3%, respectively.

Ord Minnett has an accumulate rating and $28.00 price target on its shares.

The post Buy Westpac and these ASX 300 dividend shares now: analysts appeared first on The Motley Fool Australia.

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More reading

• How investing $100 per week can create $1,500 in annual ASX dividend income
• Here’s why I invested in Accent shares for dividend income
• Cheap and growing: The best bang for buck ASX shares I’d buy
• Why this top broker just upgraded the outlook for Westpac shares
• The Accent share price has sprinted ahead since June! Here’s how much you’ve made

Motley Fool contributor James Mickleboro has positions in Westpac Banking Corporation. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Accent Group and HomeCo Daily Needs REIT. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The stock market this week is waiting eagerly for Australia’s latest inflation figures.

If it comes down more than what the Reserve Bank last forecast, then consumers, businesses and investors alike will breathe a sigh of relief.

That’s because the chances of an interest rate pause next week will firm considerably.

However, there are just some ASX shares that are well set for future gains regardless of what economic manoeuvring happens over the next few days.

They have their own thing going on.

Here are three such examples that experts are recommending to buy right now:

Overnight fame after 112 years of anonymity

Pharmaceutical wholesaler Sigma Healthcare Ltd (ASX: SIG) was hardly a household name for ordinary investors for much of its 112-year-old existence.

That all changed last month when it announced it would merge with ubiquitous retail chain Chemist Warehouse.

In just a fortnight, the Sigma share price jumped more than 50%.

Morgans investment advisor Jabin Hallihan reckons it’s not too late to get a piece of this action.

“A merge will create a healthcare wholesaler, distributor and retail pharmacy franchisor,” Hallihan told The Bull.

“The proposed merger may unlock significant efficiencies and generate cost synergies.”

Remembering that the reverse listing is pending regulatory approval, Hallihan is calling Sigma a buy.

“We suggest it may be a good time for investors to start building a position in Sigma Healthcare. The merger prospects support our recommendation.”

93% drop? No worries at all

In contrast, the Firefly Metals Ltd (ASX: FFM) share price has remained flat since completing its corporate deal in December.

Argonaut dealer Harrison Massey apparently isn’t too worried.

“FireFly, formerly known as AuTECO Minerals, completed the acquisition of the Green Bay Copper-Gold project in Newfoundland, Canada, in October 2023. 

“The asset includes a significant ready-to-go underground copper deposit, which, in our view, offers considerable upscale potential amid a history of high-grade copper production.”

The deal also included existing infrastructure.

“The recent resource is 39.2 million tonnes at 1.83% copper and 0.5 grams a tonne of gold.”

It seems he’s not the only one bullish on Firefly.

According to CMC Invest, three other trading houses also rate the stock as a strong buy.

The ASX shares going at ‘a significant discount”

Fellow miner South32 Ltd (ASX: S32) has also had its issues with its valuation.

The stock has lost 28.8% over the last 12 months, and recorded a 6.6% drop over the past fortnight.

Hallihan attributed this to “a soft operational result in the 2023 December quarter”, but is still bullish on the multinational resources company over the longer run.

“We believe the share price was recently trading at a significant discount to its valuation,” he said.

“We expect a stronger performance to follow an anticipated recovery in Chinese and global growth and metal prices.”

He has plenty of peers that agree, with 10 out of 15 analysts currently recommending South32 as a buy, as surveyed on CMC Invest.

The post ‘Start building a position’: 3 ASX shares to pounce on right now appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• Goldman Sachs says these ASX 200 mining shares can rise 20%+
• South32 share price falls after disappointing December update
• 2 ASX healthcare shares with ‘significant growth opportunities’
• The 8 ASX mining stocks Goldman Sachs says are buys in 2024

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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On Monday, the S&P/ASX 200 Index (ASX: XJO) started the week with a decent gain. The benchmark index rose 0.3% to 7,578.4 points.

Will the market be able to build on this on Tuesday? Here are five things to watch:

ASX 200 expected to rise

The Australian share market is expected to rise on Tuesday following a good start to the week on Wall Street. According to the latest SPI futures, the ASX 200 is poised to open the day 9 points or 0.1% higher. In late trade in the United States, the Dow Jones is up 0.1%, the S&P 500 is up 0.25%, and the NASDAQ is 0.55% higher.

Megaport update

The Megaport Ltd (ASX: MP1) share price will be on watch today when the elasticity connectivity and network services interconnection provider releases its quarterly update. During the first quarter, Megaport reported 36% growth in its annual recurring revenue. The market may be expecting more strong growth today. In addition, all eyes will be on its guidance for FY 2024. It is guiding to revenue of $190 million to $195 million and EBITDA of $51 million to $57 million.

Oil prices tumble

ASX 200 energy shares Beach Energy Ltd (ASX: BPT) and Karoon Energy Ltd (ASX: KAR) could have a tough session after oil prices tumbled overnight. According to Bloomberg, the WTI crude oil price is down 1.8% to US$76.62 a barrel and the Brent crude oil price is down 1.6% to US$83.22 a barrel. This has been driven by concerns over the Chinese economy following the liquidation of China Evergrande.

Woolworths remains a buy

Goldman Sachs believes that investors should be snapping up Woolworths Group Ltd (ASX: WOW) shares. In response to its trading update, the broker has retained its conviction buy rating with a new $42.30 price target. Its analysts believe management’s guidance means “a strong result especially given moderating inflation and increasing competition.”

Gold price rises

ASX 200 gold shares such as Evolution Mining Ltd (ASX: EVN) and Regis Resources Limited (ASX: RRL) look set to have a good session after the gold price rose overnight. According to CNBC, the spot gold price is up 0.4% to US$2,025.6 an ounce. Rising tensions in the Middle East boosted the safe haven asset.

The post 5 things to watch on the ASX 200 on Tuesday appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• Could this be jump-starting ASX energy shares today?
• Leading brokers name 3 ASX shares to buy today
• Woolworths share price falls on $1.5b impairment news
• This ASX 300 stock is my favourite way to invest in Australian farmland

Motley Fool contributor James Mickleboro 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 Goldman Sachs Group and Megaport. The Motley Fool Australia has recommended Megaport. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Vanguard Australian Shares Index ETF (ASX: VAS) is the biggest ASX-listed exchange-traded fund (ETF), but is it the cheapest?

Vanguard is one of the world’s largest asset managers. It’s not trying to make big profits, the owners of the business are the investors themselves. It passes the ‘profits’ onto investors by lowering the investment costs as low as it can.

The VAS ETF has an incredibly low annual management fee of just 0.07%. This was reduced from 0.10% on 3 July 2023, so VAS ETF investors are getting an even better deal.

Vanguard Australian Shares Index ETF gives investors exposure to the S&P/ASX 300 Index (ASX: XKO), which is an index of 300 of the biggest businesses including BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA) and CSL Ltd (ASX: CSL).

Other very cheap ASX-focused ETFs

Different diversified ASX ETFs have a different number of holdings, with some holding 200 businesses and some owning 300.

The BetaShares Australia 200 ETF (ASX: A200) is invested in 200 ASX shares and it has an annual management fee of 0.04%, which was cut from 0.07% on 22 February 2023. That’s even cheaper than the VAS ETF.

SPDR S&P/ASX 200 (ASX: STW) is invested in 200 ASX shares and it has an annual management fee of 0.05%, which was reduced from 0.13% per annum on 1 November 2023. This one is also cheaper than VAS ETF.

iShares Core S&P/ASX 200 ETF (ASX: IOZ) is invested in 200 ASX shares and it has an annual management fee of 0.05%. This ETF is cheaper than Vanguard’s offering as well.

It seems all of these actually have cheaper annual management fees than Vanguard.

Not even the cheapest Vanguard offering

Vanguard has many different investment funds for investors to choose from.

If investors are looking for the cheapest management fees, then Vanguard US Total Market Shares Index ETF (ASX: VTS) has an incredibly low fee of just 0.03% per annum.

The strength of US businesses and global earnings would make me want to invest in the VTS ETF over the VAS ETF for the long term.

The post How do the Vanguard Australian Shares Index ETF (VAS) fees compare to other ASX ETFs? appeared first on The Motley Fool Australia.

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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. The Motley Fool Australia has recommended CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Warren Buffett is one of the world’s greatest investors, and he has created enormous wealth for himself and numerous others thanks to his company, Berkshire Hathaway.

But he’s not recommending that investors buy Berkshire Hathaway shares. Instead, he suggests people (including his wife) should invest in a particular fund.

Buffett thinks that a low-cost S&P 500 Index (SP: .INX) exchange-traded fund (ETF) is the way to go for lots of investors. On the ASX, investors can choose the iShares S&P 500 ETF (ASX: IVV) to get exposure.

What’s attractive about the investment?

Warren Buffett reportedly once said:

Consistently buy an S&P 500 low-cost index fund. I think it’s the thing that makes the most sense practically all of the time. Keep buying it through thick and thin, and especially through thin.

The temptation when you see bad headlines in newspapers is to say, well, maybe I should skip a year or something. Just keep buying.

American business is going to do fine over time, so you know the investment universe is going to do very well.

For Buffett, low cost is a key advantage of these sorts of ETFs:

Costs really matter in investments. If returns are going to be seven or eight percent and you’re paying one percent for fees, that makes an enormous difference in how much money you’re going to have in retirement.

The iShares S&P 500 ETF has an annual management fee of 0.04%, which is one of the cheapest ETFs on the ASX. A fee of just 0.04% is almost nothing, leaving nearly all of the investment returns in the hands of the investor. There aren’t any performance fees either.

I’ll also point out that this investment gives investors strong diversification. It owns holdings in 500 companies, which is a very good number. These 500 aren’t just random businesses. They are 500 of the biggest and most profitable companies in the world, many of which have a global earnings base.

The biggest positions in the S&P 500 include names like Microsoft, Apple, Nvidia, Amazon.com, Alphabet, Meta Platforms and Warren Buffett’s Berkshire Hathaway itself.

Past performance is not a guarantee of future performance

The names in the portfolio sometimes change, but the long-term performance has been very good, thanks to the strength of the S&P 500.

Over the past decade, the IVV ETF has returned an average of 14.9%, though there’s no guarantee the next few years will be as good as that, though central banks lowering interest rates may help. I can see why Warren Buffett likes it so much.

The post Why Warren Buffett thinks most people should invest in ETFs like this one appeared first on The Motley Fool Australia.

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More reading

• 2 of the best ASX ETFs to buy now

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. 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 Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Nvidia, and iShares S&P 500 ETF. The Motley Fool Australia has recommended Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Nvidia, 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.

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