Exchange-traded funds (ETFs) or tracker funds are a great way to get exposure to the stock market. Through just one low-cost security, you get access to a whole portfolio of stocks.
That said, if your goal is to generate high returns, you should be selective about the ETFs you invest in. A bog-standard FTSE 100 tracker may not deliver the returns youre looking for.
With that in mind, heres a look at three ETFs Id be happy to invest in for 2020 and beyond.
UK stocks
For core UK exposure, Id go with the Legal & General UK Index, which is designed to track the FTSE All-Share index. The advantage of this ETF is that it provides access to around 600 UK stocks including small and medium-sized companies versus just 100 companies (all large-cap) for a FTSE 100 tracker.
The reason this is a benefit is that in general, small and medium-sized companies tend to grow faster than large companies. As a result, this ETF is likely to outperform a FTSE 100 tracker over the long run. This is well illustrated by the fact that over the last five years, it has returned 34.1% versus 30.6% for the Legal & General UK 100 Index Trust, which tracks the FTSE 100.
Fees here are just 0.04% per year through Hargreaves Lansdown.
International stocks
I wouldnt just focus on UK-listed companies though. Given that many top companies are listed outside the UK, Id also invest in an ETF that provides global exposure. Here, Id choose the Legal & General International Index Trust. This is a low-cost ETF that seeks to track the FTSE World (ex UK) index. Top holdings currently include Microsoft, Apple, Amazon, and Facebook.
This ETF has performed very well in recent years, returning 37% over three years and 75.2% over five. This means that it has literally smashed the return from the FTSE 100. Over the long run, I would expect it to keep outperforming the FTSE 100 given its exposure to higher-growth companies.
Fees here are just 0.08% per year through Hargreaves Lansdown.
Warren Buffett-type stocks
Finally, Id also invest in the iShares Edge MSCI USA Quality Factor UCITS ETF. This is an index fund that seeks to invest in US stocks that have historically experienced strong and stable earnings. In other words, it provides exposure to high-quality Warren Buffett-type stocks. Companies in the top 10 holdings currently include Apple, Johnson & Johnson, Mastercard, Nike, PepsiCo and Walt Disney.
Now, this ETF has only been available to UK investors since October 2016 (the US version has been around a little longer) so it doesnt have a long-term performance track record. However, in that time, it has performed very well, returning around 13.8% per year (to the end of October). Past performance is no guarantee of future performance, of course, but given the success that Warren Buffett has had with this kind of investment strategy over the years, I would expect this ETF to continue generating healthy returns over the long run.
Fees for this ETF are 0.2% per year.
Theres a double agent hiding in the FTSE
We recommend you buy it!
You can now read our new stock presentation.
It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.
They think its offering an incredible opportunity to grow your wealth over the long term at its current price regardless of what happens in the wider market.
Thats why theyre referring to it as the FTSEs double agent.
Because they believe its working both with the market And against it.
To find out why we think you should add it to your portfolio today
