- Australia has a strong and resilient economy, making it a low-risk investment.
- Strong trade ties to many other major economies offer good growth potential.
- ETFs help investors get exposure to foreign economies without the stress of choosing assets.
- Build a diverse portfolio for long-term growth potential.
If you’re investing for a financial goal that’s several years away, it’s important to have a diverse portfolio with exposure to several asset classes and, ideally, different economies. By diversifying, you insulate yourself from any potential negative effects, should there be a recession in India or a downturn affecting a specific industry that you’ve invested in, only a portion of your investments will lose money. Australian ETFs can be an effective form of diversification.
Why Invest in Australia?
Australia has a stable economy and good links with the rest of the world. The country’s economy is expected to maintain a growth rate of around 4.2% in 2022.1 By 2023, it’s projected that Australia will become the world’s 12th largest economy. This combination of stability and growth makes the country an appealing investment for someone who wants exposure to international markets and is looking for an alternative to traditional powerhouses such as the United States.
What Are ETFs?
An ETF, or Exchange Traded Fund, is an investment vehicle that makes it easier for retail investors to gain access to specific markets without holding the underlying asset themselves. Some ETFs hold commodities such as gold or silver. Others hold a basket of assets, such as a collection of stocks intended to track a specific market index. Investing in an ETF that tracks an index or sector frees you from the challenges associated with identifying what stocks and shares to buy and what weighting to give to each asset.
Traceydee PhotographyThe Best Australian ETFs for Indian Investors
The Australian government welcomes foreign investors.2 So, as long as Indians comply with the Royal Bank of India’s Liberalised Remittance Scheme3 rules for the amount they invest per year, they’re free to buy Australian ETFs or other assets. Several brokers in Australia allow Indian investors to open accounts online, so it’s easy to get started with Australian investment. There are numerous funds to choose from, too, including index-tracking funds and options that focus on green companies.
1. iShares Core S&P ASX 200 ETF
The iShares Core S&P ASX 200 ETF4 tracks the performance of the 200 largest companies in the ASX 200. The fund was founded in 2010 and has so far followed the index quite closely. It is a large fund with diverse holdings, including consumer goods, financial, medical and materials companies, as well as several other sectors. The allocations are reviewed regularly and may be altered as the performance of companies in the ASX 200 changes.
2. Vanguard MSCI Australian Small Companies ETF
The Vanguard MSCI Australian Small Companies ETF5 tracks the MSCI Australian Shares Small Cap Index, so it’s a convenient option for those looking for exposure to smaller Australian companies. This ETF carries more risk than one that tracks the ASX 200 or another index of larger companies but also offers the potential for higher long-term returns if the companies meet their growth targets. Investors looking for growth potential may find an ETF focused on small caps appealing.
3. BetaShares Global Cybersecurity ETF
Cybersecurity companies are under-represented in the ASX 200, so the BetaShares Global Cybersecurity ETF6 provides an opportunity for those who want exposure to this increasingly important part of the tech sector to invest in Australian and international industry leaders. The ETF’s fund includes companies such as Crowdstrike and Zscaler, as well as other major global players. There’s no minimum investment requirement, making the fund an appealing option for small- and large-scale investors alike. In addition, the asset management fee for this fund is quite competitive, at just 0.67%.
4. VanEck Vectors MSCI International Sustainable Equity ETF
The VanEck Vectors MSCI International Sustainable Equity ETF7 is a diversified fund that covers a variety of sustainable companies. It focuses on companies with high Environmental, Social and Governance (ESG) performance. This means it excludes coal, oil or gas companies, those with high carbon emissions and those that engage in activities considered socially irresponsible. It’s a relatively new fund, having launched in March 2018, but it already has more than $124 million in assets under management.
5. Vaneck Vectors Video Gaming & eSports UCITS ETF
While the Vaneck Vectors Video Gaming & eSports UCITS ETF8 is not limited to Australian companies, it’s worthy of note because of the niche sector it covers. This ETF tracks the performance of some of the world’s biggest video game (and gaming-adjacent) companies, including EA, Activision Blizzard and NVIDIA. The gaming industry has seen rapid growth in recent years and is an industry that is constantly evolving, with the potential to attract new audiences through innovations such as AR and VR. This ETF gives investors a chance to get involved with that growth.
What To Look for When Choosing an ETF
When choosing an ETF, there are several things to consider, including:
- When it was established
- The value of assets under management
- The assets it covers
- How closely it tracks the underlying asset
- How regularly holdings are reviewed
- Management fees
- Minimum investment fees
Some popular indices, sectors and commodities have several ETFs covering them. Other more niche assets may have just one or two offerings. The best ETFs track the index or assets they cover very closely, but some deviation is normal simply because of how the market operates. Consider the reputation of the fund manager and the size and liquidity of the fund before committing to a large investment.
How To Get Started With Australian ETFs
Many brokers offer the option for international investors, including Indians, to buy ETFs from them, and it’s usually quite easy to set up an account online. As long as your investments don’t exceed the value permitted under the liberalised remittance scheme, creating an account should simply be a matter of registering with the broker and providing proof of identity. If you already have an account with a broker, check which ETFs they offer, as there may be a fund similar to the ones you’re interested in.
CFD Trading With ETFs
In addition to investing directly in ETFs, some brokers offer the option of trading in Contracts for Difference (CFDs). With this type of investment vehicle, traders can gain exposure to the volatility of the market without having to hold the underlying asset. CFDs tend to be a shorter-term bet rather than a long-term investment, and there is an element of risk to this kind of trading. Those who are inexperienced traders would most likely be better off with traditional ETFs.
Seek Professional Advice Before Investing
Before making any major investments in Australian ETFs or other markets, always seek professional advice. The tax implications, risks and volatility levels of markets can vary greatly, and it’s vital to find an investment option that suits your needs and financial circumstances. Any information provided online is simply speaking about what products are available to choose from. Only a financial advisor who is aware of your individual circumstances can offer accurate advice about what may work for you and your family.