What the Fund? (Which ETFs to buy in 2021)
In this blog, we are going to talk about ETFs that I think will be a great add-on for the portfolio of an investor who might look to take benefit from a potential economic recovery after the pandemic gets more in control. But please do remember that I am not a financial advisor and this is just my personal experience when it comes to analyzing and purchasing these ETFs; so do your own research before making any investments.
Expense Ratio and Fund Composition Analysis
Vanguard ETFs are one of my favorites as they have been around for a very long time. They usually have more favorable costs compared to other ETFs, are well-managed, and tend to track the indexes quite successfully. So when I wanted to get exposure to the healthcare industry (I will explain this further below in Industry Analysis), I chose VHT which is a Vanguard ETF aimed to track the largest U.S health care stocks. Even though I like the Vanguard ETFs, I still do separate research to make sure there are no better alternatives in the segment I am planning to invest in. Using this website, you can narrow down ETFs based on a certain industry or asset class. Let’s see how this ETF comparison looks like for the healthcare segment.
With this table comparison, it is easy to get a glance at the ETFs that might match your criteria of investing, but you can click on any individual ETF to get more in-depth details about their structure and performance. As I wanted to get exposed to the US healthcare industry (as most of the innovation is happening there), I was torn between choosing
VHT. But after examining both ETFs and realizing that they both are tracking very similar indexes of companies made the final choice a bit easier; since
VHT has a lower expense ratio and is tracking a broader number of US healthcare stocks, I went with that one.
As for the composition of the fund, the diversification between Healthcare equipment and pharmaceutical companies in this ETF made sense to me as the fund tends to track the largest US healthcare companies, which happen to focus on those segments. But if in the future, I want to bet on more trending topics like BioTech or Genetics, I might consider additional ETFs that cover those segments better.
Let’s also have a quick look at this ETF’s performance in the past couple of years. As mentioned, this is not the most important factor we take into account, but still feels nice to get an overview of its previous performance.
VHT had a decent growth rate in the past three years (up around 50%) and almost keeping the same level of growth as
VOO (which is a Vanguard ETF that tracks S&P 500 index)
Healthcare is an industry that I have been interested in for a very long time. This is mainly because of its high impact on people’s lives, no matter if there is a pandemic or not. So if you are an investor with a short-mid term outlook, I think you can take benefit from getting exposed to ETFs in the healthcare industry, as they reflect the effect of vaccine distribution and other healthcare innovations that could finally get us to the other side of the pandemic life.
But as mentioned before, the healthcare industry is one of the industries that we expect to stay around for a very long time, as healthcare is always gonna be important; but more specifically for population aging in the western countries that will require more healthcare-related services and innovations. As for the younger generation and with their growing purchasing power, they are also becoming more and more health-conscious which adds to future potentials for this industry.
Expense Ratio and Fund Composition Analysis
This ETF is a bit more on the expensive side with an expense ratio of 0.71% as it is an actively managed ETF. A quick comparison of this ETF with another blockchain (as of March 2021) shows a reasonable expense ratio while having a higher 3-months trailing return and also having larger assets under management.
Personally, I am including this ETF in my portfolio as one of the riskier assets because of its rather short life span (its inception date was January 2018); but because of my high anticipation of the blockchain industry (which I will explain further in the Industry Analysis), fund’s successful past performance (1-year trailing total return of 175%) and the fund underlying composition, I personally decided to include it as a more risky ETF in my portfolio.
I have not had prior experience with ETFs being issued by Amplify, but I have to say I see a very good allocation of assets in this particular ETF. The ETF is well-diversified globally, meaning that as an investor in this ETF, you can benefit from blockchain innovations not only in the US but also in other technological strongholds such as Japan, China, and Europe.
Additionally, this ETF exposes investors to companies that are developing blockchain technologies that could result in a data-sharing revolution in the future, but also to companies that have a strong focus on using those technologies to bring advances in other industries. All in all, a very interesting and seemingly well-managed ETF for a bit more risk-seeking investors.
Blockchain technology could be one of the most interesting innovations in our lifetime. I think nobody has a clear idea of how it might change the future, which actually makes it very appealing for an investor. As of 2021, we have seen cryptocurrencies like Bitcoin or Ethereum as one of the applications of blockchain technology that could result in futuristic and new stores of value as well as decentralized finance facilitators. But the blockchain applications are by no means limited to only cryptocurrencies.
Presumably, blockchain will have a great impact on many industries. Whether it is for pharmaceuticals and manufacturers to give customers full transparency about their testing and production process; all the way to how the government and financial institutions share and transfer critical data, you can be sure that blockchain has a lot of potentials going forward. There are still a lot of IFs about blockchain technology, as it is still in the early phases of its adoption; but if you are familiar and passionate about its applications, investing in a diversified ETF
BLOK could be an opportunistic and fruitful move.
Expense Ratio and Fund Composition Analysis
This ETF has a reasonable expense ratio of 0.47% which is reasonable in context. As this ETF has been established recently (September 2020) as a response to the aftermath of the pandemic which has accelerated a lot of businesses and leisure activities happening remotely and online, it’s a bit on the riskier side. Comparing it to a similar ETF like Direxion Work From Home (WFH), we can see a similar expense ratio structure for both ETFs.
As I mentioned, both of these ETFs don’t have a long history and therefore a bit riskier. But as we are going to discuss in detail the remote work and life in the “Industry Analysis” section, I think adding both of these ETFs to your portfolio could be a smart move.
By investing in
IWFH, your investment will be diversified among different market segments, both in telework (how we can get our work done from anywhere; like productivity, collaboration, security, and cloud applications) and tele-lifestyle (how we can enjoy leisure activities or share memories from anywhere; like video calling, entertainment, and gaming) sectors.
The ETF holds assets from 81 companies that enable people to manage the labor, energy, and time-intensive tasks that used to happen physically to be done remotely and with ease. Looking at the list of holding companies, I see very interesting and high-quality businesses such as Zendesk, Slack, DocuSign, Kahoot, Netflix, and many more that will play a major role in our lives in the coming decade.
WFH , you are investing in a more concentrated ETF that has a lower number of holdings (40 companies) that in some way are providing services and products that help people work remotely. When I look at the list of holding companies, I see very promising ones such as Box, Cisco, and Zoom which will stay relevant in our work-life long after the pandemic will get under control.
The analysis for the remote work sector is a bit more difficult than the previous two because we are trying to predict the outcome of an industry that is attached to human behavior and as we know, humans are very hard to predict.
There is a lot of speculation when it comes to predicting the future of remote work and virtual entertainment sectors. There are two main sides:
People who think we need to go back to where things were before the pandemic and also folks who believe that remote work is the future and there is much less need for physical interactions. But the probable scenario is that we will have a hybrid model of remote and physical work and entertainment life in the years to come.
SO, my suggestion for looking at the remote work and entertainment industry is to look at the underlying companies and see if they are valid and high-quality businesses that are worth investing in or not, no matter if everybody wants to go back to a physical office or not.
For example, I find Zoom a great application that will still be relevant in a scenario where everybody comes back to the office. I could still imagine myself getting a zoom notification, opening a zoom chat in the office and at my own desk for the all-team member’s meetings (some who could be in a different office or another country), and just have a productive meeting with chat and file-sharing capabilities. This will not change whether we go back to the physical offices or not.
So by investing in ETFs that hold a lot of these high-quality companies that could have strong applications in both contexts, you are protecting your investments in the best possible way.
A smart investor is always thinking long-term about their investment while absorbing and analyzing as much current information about future movements in the market. We are unable to predict the future, but we can trust reliable data such as expense ratio as well as potential in different industries and companies to make good investment decisions. My aim in this piece was to not only give you some ideas about which investment assets to add to your portfolio in this chaotic time but more to help you think about how one should think about analyzing information and making a final decision. Make sure to share your insights with me on this ;)
This article is for informational and entertainment purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.