Buy Hold Sell: 2 core ETFs and 4 satellites for some sizzle
Here's a little sizzling fun fact for your Friday after-work drinks. There is now more than $102 billion invested in exchange-traded funds (ETFs) in Australia, with almost half of that amount ($46 billion) invested over the past 12 months alone.
For some perspective, that's bigger than the GDP of nearly 130 countries (according to the International Monetary Fund), like Luxembourg, Guatemala, Bulgaria, Ghana, Costa Rica, Croatia, Iceland, the Maldives and Fiji, to name a few.
It's safe to say then that ETFs are well and truly on their way to world domination - with investors young and old using the investment vehicles for index-like returns, active management, and various exposures to new and exciting thematics.
To help distinguish the steak from the sizzle, Livewire's Bella Kidman is joined by Shaw and Partners' Adam Dawes and VFS Group's James Whelan for their thoughts on two core ETFs for your portfolio, as well as four satellites with upside potential.
Notes: Watch, read or listen to the discussion below. This episode was filmed on 31 March 2021.
Bella Kidman: Welcome to Buy Hold Sell, brought to you by Livewire Markets. My name is Bella Kidman, and today we're not going to discuss one, we're not going to discuss two, we're going to be discussing six ETF ideas for your portfolio. We'll be discussing two core and four satellites for some sizzle. And to help me discuss this today, I'm joined by two men that eat, sleep and breathe ETFs. I've got Adam Dawes from Shaw and Partners and James Whelan from VFS Group.
Vanguard Global Value Active ETF (ASX: VVLU)
James, first up we have the Vanguard Global Value Active ETF, really capitalising on that move from growth into value stocks. Buy, hold, or sell?
James Whelan: Buy. Really happy to say that I'm a buyer on this one. Vanguard do fantastic work. Now, the simple reason for this is that inflation is going up, yields are going up. When yields go up, you want to own value stocks. And this is the rotation from growth to value right now. Additionally, they are active, which means that they actually were able to go over-weight financials by 13% during the financials rally in the last few months. This one has rallied and will continue to do so in 2021.
Bella Kidman: Adam, for years nobody wanted to touch value, now we're bathing in it. Buy, hold, or sell on this ETF?
Adam Dawes: It's a buy for me as well. I think it sits really nicely in a portfolio and especially with the sell down of tech stocks we're seeing.
iShares Core S&P/ASX 200 ETF (ASX: IOZ)
Bella Kidman: Well, next up, it's in the name. It's the iShares Core S&P/ASX 200, giving investors exposure to the biggest Australian companies. Buy, hold, or sell?
Adam Dawes: This is a hold. I use another ETF, which is the BetaShares A200 (ASX: A200) series. The only reason why, is that they have one of the lowest MERs in the market; it's sort of seven basis points. So for me, when you're looking at an index, an ASX 200, I prefer to go somewhere that has lower fees.
Bella Kidman: There's not much more reliable than the Australian share market they say, so buy, hold, sell on this ETF?
James Whelan: I have to be a hold as well. For us, with our allocation, we like to be equal weighted when it comes to the Australian market, so it's not completely weighted towards banks and resources. So the VanEck equal-weighted ETF (ASX: MVW), is where we go, but this one is fine too. Its a Hold for me.
VanEck Gaming & eSports ETF (ASX: ESPO)
Bella Kidman: Okay, gents. Get your plates ready, get your tomato sauce out. We're going to do some sizzling satellite ETFs. First up, we've got the VanEck Gaming & eSports ETF, and this is giving investors exposure to the biggest game developers in the world. Buy, hold, or sell?
James Whelan: For now, sell, but longterm, buy. As the reopening trade is going on, more people will be going out, people will be active, theres a restaurant theme a live sports theme that is developing. Esports was doing great in the pandemic but not for a reopening play. It will come back, and that's when I'd want to be owning it.
Bella Kidman: Adam, we're right on the cusp of a huge growth thematic here, but should investors be wary about getting played by this ETF?
Adam Dawes: ESPO is a buy from me. It listed at $10. It went up to 12. It's now back to around that $10 mark. I think it's a buy. The reason why I think it's a buy is that it looks at gaming revenue and the companies inside it must have over 50% of its revenue coming from gaming. Now that's Tencent. Nobody really understands that Tencent has more of gaming revenue than not. But it doesn't have the Microsofts, it doesn't have all of these larger cap companies in there. So I think it's a fantastic thematic. I think it's a buy.
ETFS Securities Battery Technology & Lithium ETF (ASX: ACDC)
Bella Kidman: Okay. Next up, we've got ACDC and I'm not referring to the Australian rock band here. I am, of course, referring to ETFS Securities Battery Technology & Lithium ETF. Buy, hold, or sell?
Adam Dawes: Look, it's a hold from me. I think this stock, this ETF has had a fantastic run. It is really, really good, and it gives your clients exposure to that technology. One of its three major holders is Galaxy, Orocobre and Tesla. So look, it does wrap up a lot of that market hype that's going on at the moment. It has risen really hard but now it is moving sideways. I think you could probably get it at a little bit more of a discount as the market starts to sell off some of these lithium players. I think it has been overbought.
Bella Kidman: This is the juice behind electric vehicles. Is this the right way to get exposure or should we be better off investing in big brands like Tesla?
James Whelan: I'm a buy on this one. I think it's a buy and just put it in your portfolio and then come back in five years time, and you will thank all of us for this one. So for that, buy and hold it for a long time. Battery technology is the key behind the EV revolution. You can buy copper. That's great. But when it comes to the electrification of the planet, it's all about the battery.
BetaShares Global Cybersecurity ETF (ASX: HACK)
Bella Kidman: Okay. Our next spicy sizzling satellite is, the BetaShares HACK ETF. Now, this gives investors exposure to worldwide cybersecurity companies. Buy, hold, or sell?
James Whelan: I'm a buy on this one. I think that when the pandemic hit, it was amazing how quickly IT departments managed to get us all into the cloud as quickly as possible. They are still working to secure that cloud and that cloud, which we are all working in is, is continually being attacked. That will continue to happen as we continue to move into the cloud more and more and more. So just based on that simple thematic, it's got more growth. It's a buy.
Bella Kidman: It's a big growth thematic. Australia is relatively underdeveloped in this market, but the whole world is onto cybersecurity. Buy, hold, or sell?
Adam Dawes: It's a buy. I can't disagree with anything that James has said. The thematic alone is huge. You pick an ETF like this one, put it in the bottom drawer. I think you'll do really, really well.
Horizon Kinetics Inflation Beneficiaries ETF (NYSEARCA: INFL)
Bella Kidman: Okay. Next up, inflation, perhaps not as sexy as cybersecurity, but important and topical. Next up, we've got the Horizon Kinetics Inflation Beneficiaries ETF. They are an off-shore provider so I'd be interested to find out whether you think Australia will enter this market and whether it's a buy hold or sell?
Adam Dawes: It is an international ETF and generally we don't give advice on international ETFs or stocks that aren't listed on the ASX. So for me, it's a hold. But I did speak to a couple of ETF providers today to ask them about whether some of these products will be available here in Australia. They have confirmed they're coming.
It is a big thematic. If you look at the underlying assets inside of that ETF they hold some ASX they hold some Singapore stock exchange, they do hold some of Deterra royalties. These are all beneficiaries of inflation. I think this is a strong thematic. For me, it's a hold.
Bella Kidman: Everybody's talking about inflation. It's coming. You better get ready for it. Is this ETF the right answer, or do you think that there's going to be a movement towards this in Australia? Buy, hold or sell?
James Whelan: It's a buy for me. It's got just the holdings that you'd want to hold on an inflationary uptick. It is overseas though. What Adam said is just amazing. Part of the reason why you want to have an advisor and people that are on that frontline is so that we can go and talk to the ETF providers on their client's behalf. We can go to these funds and say, "Hey, I've got investor demand, create an ETF for this". If there was one locally, I'd be all about it. This is a buy from me. Inflation will be the story for 2021.
Bella Kidman: Well, whether you're stocking up on your reliable cores or getting some spicy satellites, one thing is certain, ETFs can provide you with a market HACK or two. If you've enjoyed this episode of buy, hold, sell, make sure you subscribe to Livewire's YouTube channel.
What are your top core and satellite ETFs?
What ETFs do you think would make for either a great core or satellite addition to a portfolio? Let us know in the comments below!
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Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.