Core ETFs

What Are Core ETFs?

Core ETFs typically refer to a group of exchange traded funds (ETFs) that help form the foundation of a portfolio. These ETFs are designed to provide exposures to a market, asset class, or sector in which the investor holds as a key pillar in their portfolio. In general, core ETFs are characterised by their low costs, diversified holdings, and long-term investment horizons.

Core ETFs are a great option for those looking to build the foundation of their portfolios. They offer efficient and diversified access across a broad range of assets from share markets to bonds and precious metals. Additionally, the transparency and liquidity of ETFs provide ease of access and flexibility in buying or selling positions. Ultimately, incorporating core ETFs into a portfolio offers a blend of diversification, cost efficiency, and accessibility, making them a valuable tool for both novice and seasoned investors alike.

Core holdings are the fundamental investments of a portfolio, usually suited for long-term strategies due to their low volatility and diversification. Some common examples of core holdings include:

• Index funds and ETFs, which track the performance of broad market indices, providing exposure across various sectors and countries.
• Bonds, whether government or corporate, offer regular interest payments and are generally considered lower risk compared to stocks. These can sometimes serve as cash complements due to their liquidity and consistent yield.
• Alternative assets, such as precious metals like gold, can help to smooth out volatility thanks to their low correlation to equities and other asset classes.
• Diversifiers, such as sector or country funds, can provide investors with the tools to maintain broad diversification while also adjusting their specific exposures.

Global X has three core ETF offerings, each with a unique strategy to suit different portfolios and investment goals.

• Global X S&P World ex Australia GARP ETF (GARP)
• Global X Australia ex Financials & Resources ETF (OZXX)
• Global X Russell 2000 ETF (RSSL)
• Global X US 100 ETF (U100)

Global X S&P World ex Australia GARP ETF (GARP)

‘Growth at a reasonable price’ known as GARP, has been a popular strategy since the 1980s as it looks to find a balance between growth and value investing. The Global X World ex Australia GARP ETF (ASX: GARP) offers access to 250 global companies, excluding Australia, with strong earnings growth, solid financial strength, and reasonable valuations.

Why invest in GARP? GARP offers a balanced approach for a diversified portfolio as a core solution, combining growth and value stocks for potential outperformance. It complements global equity ETFs by smoothing performance across different market cycles, as growth and value stocks respond differently to economic conditions. Additionally, GARP can replace active growth managers with a lower-cost, long-term growth strategy.

Global X Australia ex Financials & Resources ETF (OZXX)

The Global X Australia ex Financials & Resources ETF (ASX: OZXX) invests in Australia’s top 100 companies, excluding those in the financial (including REITs), basic material and energy sectors. OZXX is a core ETF which is designed to be used as a diversification tool as many Australians already hold financial companies like the big banks and large miners as individual shares.

Why invest in OZXX? OZXX is a core ETF which aims to complement existing holdings by providing exposure to the broader Australian market, excluding major banks and miners. It offers an alternative for investors who already own these stocks, focusing on higher-growth sectors for potential outperformance. Additionally, OZXX tilts toward less mature, growth-oriented companies by removing the financials and materials sectors, which dominate the S&P/ASX 200.

Global X US 100 ETF (U100)

The Global X US 100 ETF (ASX: U100) offers exposure to 100 of the largest and most innovative companies in the US, primarily focusing on high-growth sectors like technology, consumer goods, and digital services. By tracking major players listed on the NASDAQ and NYSE, such as Alphabet, Apple, Amazon, Microsoft, and Nvidia, this core ETF provides access to leading firms driving the future of global industries. It is an ideal investment for those seeking diversified exposure to cutting-edge US companies with strong growth potential.

Why invest in U100? U100 tracks an index that offers exposure to innovative, US sectors like technology and consumer goods. It complements traditional investments by providing access to high-growth US companies, enhancing portfolio diversification – particularly for Australian investors who currently have a strong home bias in their portfolio. Using this core ETF also helps to remove the costs and complexities of investing in overseas markets by yourself.

Core ETFs all work in a similar way to other types of ETFs in that they use a set of rules on a universe of stocks to narrow down to a basket of holdings which will produce the desired investment goal. Generally, core ETFs make up a significant portion of a portfolio and therefore have a larger number of stocks and are broader in comparison to more targeted approaches like thematic ETFs, which normally form the satellite of portfolios.

Investing in core ETFs with Global X is simple. You can use an online trading account, stockbroker, or financial adviser to make the investment. After setting up your online trading account, review the ETF TMD and PDS, then use the ticker code to purchase the ETF.

Global X offers a variety of core ETFs, each focusing on a different strategy allowing investors to select those that match their investment objectives.

Get more information on how to invest with Global X.

Core ETFs have some compelling benefits which make them an appealing option for many different types of investors.

Diversification

Core ETFs offer diversification by holding a broad range of assets, reducing the risk associated with individual securities. They help provide exposure to multiple sectors, regions, or investment styles, helping smooth out market fluctuations. As core holdings, these ETFs create the building blocks of a portfolio, making it easier for investors to achieve balanced and diversified exposure without needing to manage multiple individual investments.

Cost-Effective

Core ETFs offer a cost-effective way to gain diversified exposure to various markets or assets that might otherwise be hard to access or buy in a quantity large enough to build the core part of a portfolio. They are often a more affordable alternative to actively managed funds or purchasing individual stocks.

ETF Efficiencies

Core ETFs can be an accessible and efficient vehicle to build out the core of your portfolio due to their lower turnover compared to actively managed funds, as they generally incur fewer capital gains taxes, enhancing tax efficiency. Additionally, ETFs are highly liquid, with their value directly tied to the liquidity of the underlying assets they hold, making them easy to buy and sell on the share market.

It is important to note that while core ETFs are designed for long-term investing, they are not without risk.

Market and Economic Risk

While core ETFs are designed for long-term investment, they are still influenced by market conditions and economic factors that can affect their performance. For instance, if purchasing a core ETF which focuses on Australian companies, the performance of that fund will likely reflect the health of the Australian share market and economy.

Underlying Asset Risk

The performance of core ETFs depends on the assets they track, and any risk associated with those underlying assets can impact the fund. It's essential to assess the stability and outlook of the assets within the ETF before making an investment decision.