Most Popular ETFs - Open door to long term investing?

Many investors are interested in the potential of ETFs given the long-term great streak of the US stock market. An index of the 500 largest U.S. companies listed on the New York Stock Exchange, the S&P 500 has returned 5 percentage points more to investors than yields of 10-year treasuries bonds over the long term (and average 10% yearly in the last 100 years). This had to do with both the successful economic trend and monetary policy. Consequently, a massive amount of money fed into the S&P 500, and long-term holders of any ETFs in recent years had no arguments to complain.

ETFs have helped “democratise” financial markets by opening up access to the stock market for millions through index funds and funds that track company stocks and assets in select sectors. For example, commodity ETFs, new technology or bond ETFs. In the following post, we will list 7 popular ETFs and outline what are the advantages and disadvantages of investing in ETFs. These assets, together with Investment Plans, can significantly help you build a long-term investment portfolio. In what way? Let's find out below.

ETF - Pros and Cons

ETFs do not guarantee investment returns. The level of returns from investing in them is determined by how the market will price what they hold in their portfolio (stocks, bonds, etc.) or- the behaviour of the prices of the assets they track (e.g. gas prices, gold, silver, etc.). They have advantages and disadvantages, which we describe below to help potential investors analyse their potential and risks. Here are some of them.

Advantages

• Great for long-term investors who prefer a passive investment style
• Low entry barrier, low fees (TER) and high liquidity
• Limited risk and possibility of portfolio diversification
• Lower volatility of investment value fluctuations
• For both beginners and advanced investors
• Possibility of investing in a bunch of assets like indices, bonds or commodities 
• Investor may be sure that index fund prove exactly same performance with stock indices for example S&P 500 or Nasdaq 100

Disadvantages

• May not be appropriate for traders and short-term investors who prefer an aggressive investment style
• Lower risk is balanced by possible lower returns
• Investor-selected exchange traded fund may underperform compared to top companies or indices during bull markets
• Diversification does not guarantee returns and can also lead to losses
• In a portfolio, a few exchange traded funds can spoil the performance of those that are doing great
• Risk of misalignment of ETF in a portfolio
• Excessive concentration of capital in passive investments can limit allocation options toward riskier assets (possibility of outstanding returns)

Index fund ETFs give investors usually a guarantee that they will exactly replicate underlying instrument return in the long term. Here we can see iShares Core S&P UCITS and tracked by its S & P 500 Net Total Return Index. The performance of the iShares index ETF is even “better” with Total Return of 204% from 2013 vs 194% return of S&P 500 NTR.

Source: Bloomberg Finance LP

Please be aware that information and research based on historical data or performance does not guarantee future performance or results. Past performance is not necessarily indicative of future results, and any person acting on this information does so entirely at their own risk.

Most Popular ETFs

Exchange traded funds (ETFs) offer investors exposure to almost every asset class:

• Stock market indices (U.S. indices, European indices, emerging markets, etc.)
• Selected sector ETFs (for example new technologies, banks, biotechnology etc.)
• Green and ESG investments (renewable energy, electric cars etc.)
• Bonds (from corporate high-yield bonds, US 10-year “treasuries”)
• Energy and materials (e.g. commodity etf on natural gas, copper)
• Precious metals (gold, silver)
• Dividend equity ETF (“distributing” model ETFs)

Good to know

• The outcome of any exchange traded fund is closely dependent on future, usually unpredictable in the short term, developments in global markets and the economy
• In the long term, a strong global economy should be seen as a positive driver of the stock market - rising consumption means higher corporate profits and possibility of beating analysts expectations
• Decisions of central banks can affect not only the stock market but especially bonds (and bond ETFs) but also... Precious metals or energy commodities. Don’t forget about doing your own research and gaining financial knowledge - even if You invest passively;
• A basic financial principle states that the lower the risk, the lower the potential returns on investment. This theory also implies its opposite - for taking higher risk, investors can expect a higher reward but also higher losses 
• Detailed information about each exchange traded fund can be found on its issuer's website. In the case of iShares ETFs - the institution responsible for their issuance is BlackRock
• Investors can sell etfs whenever they want - when stock exchanges are open

Very popular ETFs include, for example:

• iShares Core MSCI World UCITS EUNL.DE - diversified developed countries stock market exposure
• iShares S&P 500 UCITS SXR8.DE - shares of 500 biggest US companies, listed on S&P 500 index fund
• iShares Nasdaq 100 UCITS SXRV.DE - stocks from Nasdaq 100 index - leading US technology companies index
• iShares MSCI World SRI UCITS 2B7K.DE - portfolio of companies with a high ESG index
• iShares Core MSCI Europe UCITS IMAE.NL - largest stock market companies in Europe
• iShares Core MSCI World EM IMI UCITS IS3N.DE - broader exposure on equities from emerging markets
• iShares MSCI Asia EM UCITS CEBL.DE  - Asian (also Chinese) companies

The exchange traded funds listed above are certainly among the most popular but represent only a fraction of the hundreds of different funds offering diverse exposure to different segments of the financial market. For long term investors expense ratio is very important, so we adjusted the ETFs with that information. We will list just a few more of them below:

iShares Core MSCI World 

Addressed for long term investors, may be a portfolio core assessing long term growth opportunities in developed countries. MSCI World covers 85% of listed equities in 23 economies which means geographically diversification and allocation between each developed country like US, Canada, Germany, Switzerland or the United Kingdom. This ETF has in its portfolio core well developed companies with global business and provide big exposure on the US market.

• Investing goal: Tracking stock performance of companies from developed countries
• Number of holdings: 1513
• TER (Total Expense Ratio): 0,2%
• Distribution policy: Accumulating
• 15 Biggest stock holdings: Apple, Microsoft, Amazon, Nvidia, Alphabet, Tesla, Meta Platforms, United Health, Eli Lilly, Berkshire Hathaway, Exxon Mobil, JP Morgan, Johnson & Johnson, Visa, Broadcom
• Sectors: Technology (22%), Financials (14,7%), Health Care (12,7%), Industrials (10,7%), Consumer Discretionary (10,7%)
• Standard deviation (3yr): 17,64% (as for 30 September 2023)
• Cumulative return (5yr): 42,49% (as for 30 September 2023)
• ESG Rating: A
• Rebalancing: Quarterly

iShares S&P 500 UCITS

The ETF guarantees exposure to 500 well-established U.S. publicly traded companies that often conduct global business. Exposure to the S&P 500 Net Total Return Index means that the ETF reflects the return of the S&P 500 index plus the dividends paid (Withholding Tax) by the companies listed in it. The composition of the S&P 500 index changes over time - some companies exit the index and are replaced by new businesses debuting in it. ETFs take this fact into account and do not require the investor to actively manage the portfolio. By purchasing it, the investor is assured that its quotations will reflect those of the S&P 500 - in all economic conditions and also in the long term.

• Investing goal: Tracking performance of S&P 500 NTR (Net Total Return Index)
• Number of holdings: 503
• TER: 0,07%
• Distribution policy: Accumulating
• 15 Biggest stock holdings: Apple, Microsoft, Amazon, Nvidia, Alphabet, Tesla, Meta Platforms, United Health, Eli Lilly, Berkshire Hathaway, Exxon Mobil, JP Morgan
• Sectors: Technology (28%),  Health Care (13,3%), Financials (12,6%), Consumer Discretionary (10,5%), Communication (9%)
• Standard deviation (3yr): 17,85% (as for 30 September 2023)
• Cumulative return (5yr): 57,98% (as for 30 September 2023)
• ESG Rating: A
• Rebalancing: Quarterly

iShares Nasdaq 100 UCITS

Investing in this ETF means broad exposure to US new technology sectors like software, hardware, semiconductor, digital advertising and also AI. What’s more also companies from biotechnology, retail and wholesale or telecommunications are the investment benchmark. This index is dominated by large and medium cap companies. It’s known as the global technology  sentiments momentum benchmark.

• Investing goal: Tracking performance of 100 largest non-financial) companies listed on Nasdaq 
• Number of holdings: 101
• TER: 0,33%
• Distribution policy: Accumulating
• 15 Biggest stocks: Apple, Microsoft, Amazon, Nvidia, Meta Platforms, Tesla, Alphabet, Broadcom, Costco Wholesale, Adobe, Pepsico, Cisco, Comcast, AMD, Netflix
• Sectors: Technology (49%), Communication (16%), Consumer Discretionary (13,9%), Healthcare (7%), q (6%)
• Standard deviation (3yr): 22,49% (as for 30 September 2023)
• Cumulative return (5yr): 97,15% (as for 30 September 2023)
• ESG Rating: A
• Rebalancing: Quarterly

iShares MSCI World SRI UCITS

The index consists of several hundred companies with very high ESG Environmental - Social - Governance (clean energy, ecology, social responsibility and corporate governance) scores. The index reviews companies for their exposure to the defence industry (including nuclear weapons, controversial conventional firearms), alcohol, gambling or genetically modified organisms. Additional restrictions also apply to green energy and environmental protection, thanks to additional restrictions on companies in the coal, oil sands, power generation, gas and oil extraction sectors. Of particular interest to investors who highly value investments that meet ethical and environmental criteria above all else.

• Investing Goal: Tracking index composed of companies from developed countries with high ESG rating
• Number of holdings: 415
• TER: 0,2%
• Distribution policy: Accumulating
• 15 Biggest stocks: Tesla, Microsoft, Home Depot, Novo Nordisk, Adobe, ASML, Pepsico, Coca Cola, Walt Disney, Danaher, Intuit, Amgen, Texas Instruments, Verizon Communications, S&P Global
• Sectors: Financials (17%), Technology (15%), Consumer Discretionary (15%), Health Care (15%), Industrials (13%), Consumer Staples (8%)
• Standard deviation (3yr): 16,14% (as for 30 September 2023)
• Cumulative return (5yr): 65,89% (as for 30 September 2023)
• ESG Rating: AA
• Rebalancing: Quarterly

iShares Core MSCI Europe

This ETF gives investors wider exposure to the stock market by investing only in European equities. At the same high number of diversified stocks from developed countries companies  may be a part of long term view of Europe as the important financial (swiss banking - UBS) industrial (automotive - Volkswagen, BMW, Porsche or Mercedes), Consumer Discretionaries (Nestle), Healthcare (NovoNordisk) and luxury brands (LVMH) global player.

• Investing Goal: ETF is tracking performance of biggest listed companies from European countries only
• Number of holdings: 428
• TER: 0,12%
• Distribution policy: Distributing (dividends payable semi-annual)
• 15 Biggest stocks: Nestle, Novo Nordisk, ASML, Shell, LVMH, AstraZeneca, Novartis, Roche, HSBC, Total Energies, SAP, Sanofi, Unilever, BP, Siemens
• Sectors: Financials (17%), Industrials(16%), Health Care (15%), Consumer Staples (11%), Consumer Discretionary (11%), Materials (7%)
• Standard deviation (3yr): 15,59% (as for 30 September 2023)
• Cumulative return (5yr): 34,9% (as for 30 September 2023)
• ESG Rating: AA
• Rebalancing: Quarterly

iShares MSCI Asia EM

This ETF fund gives the investor diversified exposure to Asian equities and also Indian or Vietnam stocks, which may have even higher growth potential than China due to population growth and huge number of successful tech companies.

• Investing Goal: Tracking performance of selected “Asian only” companies from selected emerging economies (MSCI EM Asia Index Net Total Return)
• Number of holdings: 642
• TER: 0,18%
• Distribution policy: Accumulating
• 15 Biggest stocks: China Construction, HDFC Bank, SK Hynix, Hon Hai Precision, Tata Consultancy, Netease, Ping an Insurance, Baidu, Mediatek, JD Com, Samsung, Bank Central Asia, BYD Ltd, Bank of China, POSCO
• Sectors: Technology (24%), Financials (23%), Consumer Discretionary (15%), Communication (10%), Industrials (5%)
• Standard deviation (3yr): 19,64% (as for 30 September 2023)
• Cumulative return (5yr): 3,38% (as for 30 September 2023)
• ESG Rating: BBB
• Rebalancing: Quarterly

iShares Core MSCI World EM IMI

Access to emerging markets may be limited to some investors but iShares Core MSCI World EM IMI is here to solve this “problem”. Index gives exposure to over 2,800 companies from countries such as China, Brazil, India or even Vietnam. Because of it, investors will not miss out on the hidden growth potential of small companies outside developed economies. This ETF may be more risky due to the higher number of small countries, from ‘exotic’ markets but still may be a very important core of the diversified, global portfolio.

• Investing Goal: Tracking index composed of large, mid and small companies from emerging markets
• Number of holdings: 3186
• TER: 0,18%
• Distribution policy: Accumulating
• 15 Biggest stocks: Taiwan Semiconductor, ISH MSCI China, Tencent Holdings, Samsung, Alibaba, Meituan, Reliance Industries, PDD Holdings, Infosys, Icici Bank, China Construction, HDFC Bank, SK Hynix, Hon Hai Precision, Tata Consultancy
• Sectors: Technology (20%), Financials (20%), Consumer Discretionary (13%), Communication (8%), Materials (8%)
• 15 Biggest stocks: Taiwan Semiconductors, Tencent Holdings, Samsung, 
• Standard deviation (3yr): 17,49% (as for 30 September 2023)
• Cumulative return (5yr): 6,44% (as for 30 September 2023)
• ESG Rating: BBB
• Rebalancing: Quarterly

*Using the iShares Nasdaq 100 UCITS ETF as an example - a TER cost of $0.33% means that after a $10,000 investment - the first year's fees will be $33. The Total Expense Ratio (TER) consists primarily of the management fee and other expenses such as trustee, custody, registration fees and other operating expenses. Proven data above may change in time - the information is proven average on October 09, 2023.