Index investing is when investors aim to replicate the return of the market rather than trying to beat it and the best passive index funds provides are exposure to markets that is expected to outperform in the long run. Research shows it is extremely difficult outperform the market consistently so most have decided to vote with their feet and just follow the market instead.
There are many features to look for in passive funds. The key focus should be on:
- Cost – most ETFs fees are extremely low to start with but those funds which track more exotic market will have higher fees.
- Diversification – this is more of a function of the underlying index. Some funds could be dominated by the a particular stock or an industry sector.
- Liquidity – It is important that the fund is large so there is liquidity to enter and exit positions.
Top 3 Passive Index Funds
iShares MSCI Hong Kong ETF (Ticker EWH)
In Asia we like the Hong Kong exposure. The market has been beaten down and it look to rebound shortly. The ETF aims to gain exposure to large and mid-sized companies in Hong Kong and it is a single country exposure ideal for what we are looking for.
We think this is a really good trade in the short and medium term. Long term outlook is cloudy given the increasing encroachment of China in Hong Kong.
PowerShares QQQ Trust (Ticker QQQ)
The tech sector is outperforming the rest of the market and it looks to be immune from the impact of the Covid. If anything else it looks like Covid is accelerating the trend of ecommerce and software is really eating the world.
iShares MSCI Japan ETF (Ticker IJP)
We like Japan as it is one of the largest economy which has handled Covid really well. It is expected to outperform other major markets and the market has not yet caught up with the improving fundamentals.