I think there are some great exchange-traded funds (ETFs) worth buying for both dividends and growth.
ASX shares are great but the ASX only represents 2% of the world's total market capitalisation. I think investors would do well to diversify their portfolios by looking at other businesses and ETFs like these two:
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Betashares Ftse 100 ETF (ASX: F100)
This ETF represents the biggest 100 businesses on the London Stock Exchange. It has an annual management fee of 0.45% per annum.
The UK share market is going through a tough time at the moment with both Brexit and tougher COVID-19 impacts (higher health impacts and the return to tighter restrictions).
But many of the biggest businesses in this ETF aren't just UK shares, they are global companies with solid long-term potential. To me, it just seems like investors are feeling bearish because they are listed in the UK.
Some of the biggest holdings include: AstraZeneca, GlaxoSmithKline, HSBC, Diageo, British American Tobacco, Unilever, Rio Tinto, Reckitt Benckiser, BP and Royal Dutch Shell.
There are also a number of other interesting businesses in the holdings that could generate good long-term returns including National Grid, Vodafone, London Stock Exchange, Flutter Entertainment, BAE Systems, Scottish Mortgage Investment Trust and so on.
Before COVID-19 came along, it was a high-paying dividend ETF with attractive valuations and generous dividend payout ratios. I think the dividends will return, as early as 2021, which could mean this ETF delivers good dividend income in the future.
According to BetaShares, this ETF (which is down 26% from the pre-COVID-19 price) has a price/earnings ratio of just 14. That looks pretty cheap to me with how low interest rates are.
BetaShares Global Quality Leaders ETF (ASX: QLTY)
This ETF doesn't have the income potential of the UK share market, but it has more long-term compounding growth potential in my opinion.
BetaShares Global Quality Leaders ETF gives investors exposure to some of the best businesses in the world. To make it into this portfolio, a company has to rank well on several metrics: return on equity (ROE), debt to capital, cash flow generation ability and earnings stability.
Whilst it may not include some of the world's most exciting early stage businesses, profitable quality businesses have the ability to consistently keep performing – including through downturns.
The investment performance of the ETF certainly demonstrates strong performance. Over the past year, including the COVID-19 crash period, the ETF's net return has been 17.8%. Since inception in November 2018, it has delivered average returns per annum of 19.6%.
Returns won't always be as good, but I think it can outperform the overall global share market with its high-quality holdings with names like Nike, Nvidia, Texas Instruments, Keyence, UnitedHealth, Novo Nordisk, Alphabet, Facebook, Intuit and Intuitive Surgical.
How much income does it pay? Not a huge amount, but it's decent. Its trailing distribution yield currently amounts to a 2.4% yield, which is not bad at all in this environment. In July, at the time of the latest distribution, it had an annual distribution yield of 2.8%.
For what the ETF provides, I think the management fee is very reasonable at just 0.35% per annum. With an active Australian fund manager, you'd probably be paying at least 1% per annum in fees. Plus the performance fee if it managed to outperform.
Foolish takeaway
I think each of these ETFs are very compelling in my opinion. The UK share market could be an opportunistic buying opportunity, while the quality ETF could keep producing solid total returns whatever happens next with COVID-19 or any other event.
