At this time of the year, share market pundits often nominate their top ‘stocks for your Christmas stocking’. Exchange Traded Funds (ETFs) don’t have the same ring over the festive season, but I see some interesting ETF opportunities for 2025.
ETF growth astounds. The local ETF market had $235 billion of assets at end-November 2024, ASX data shows. That’s more than four times larger than the Listed Investment Companies (LIC) market and even larger than the listed property trust market (A-REITs)
Remarkably, 14% of all first-time investors in Australia began with an ETF in 2023, the latest ASX Australian Investor Study shows. That figure will grow faster in coming years as younger investors gravitate to low-cost ETFs and start with them over shares or unlisted managed funds.
I recall working for a global ETF issuer about a decade or so ago when there were just a few dozen ETFs on the ASX and most investors had never heard of them. Today, passive strategies have surpassed active strategies in assets under management globally. Expect that gap to widen this decade.
I like using ETFs for exposure to global themes and tactical opportunities. Some key investment themes – for example, defence – have limited exposure on ASX. Using an ETF is the best way for local investors to back that trend.
To be clear, active funds and direct share investing still have important portfolio roles. I have no time for the active versus passive debate: both investment styles bring something different to portfolios. Both have a place in most portfolios. The key is knowing how to blend them to achieve different investment goals.
For this article, my focus is on ETFs from a tactical perspective. That is, thematic ETFs as portfolio satellites to enhance returns in 2025, rather than core exposures. As such, these ideas suit experienced investors with higher risk tolerance.
Here are six ETF ideas to consider for 2025. The first three will be well known to longer-term readers of this column. The last three might surprise:
- Betashares Global Banks ETF – Currency Hedged ETF (ASX: BNKS)
I have written positively about BNKS a few times this year, so I feel slightly guilty about featuring it again. But this column is about making money in 2025 and global banks remain attractive, even after gains this year.
BNKS is up 42% over one year to end-November 2024, BetaShares data shows. Over five years, however, the annualised return is only 7.4%, suggesting global bank valuations have a lot of ground to make up.
United States bank stocks still look attractive, certainly compared to mostly overvalued Australian banks. Moreover, Trump’s victory will be a tailwind for US banks in 2025 as the US economy grows and banking regulation is more favourable.
European banks look even cheaper, with several quality banks there on single-digit Price Earnings ratios despite servicing large markets.
Chart 1. BetaShares Global Banks Currency Hedged ETF (ASX: BNKS)
- VanEck Global Defence ETF (ASX: DFND)
I respect investors who don’t invest in defence companies on Environmental, Social and Environmental (ESG) grounds. For me, global defence stocks look seriously interesting in this volatile geopolitical environment.
Launched in September, DFND offers exposure to a portfolio of listed companies in the military and defence industries. That includes mostly large companies in the aerospace, communications, security software and training sectors.
Global defence industry spending is expected to grow nearly 40% to US$3.1 trillion by 2030, according to research cited by VanEck. In percentage terms, growth in defence spending in 2023 was the strongest since 2009.
DFND has had a good start since listing and can go further in 2025 and beyond as demand for military products and services grows, as geopolitical risks rise.
Chart 2: 2. VanEck Global Defence ETF
- Betashares Global Energy ETF (ASX: FUEL)
In October, I nominated FUEL as a way to play a potential Trump victory in the US. The ETF was up 5.1% in November but has only returned 9.6% over one year.
I like the outlook for global energy producers this decade, principally on emerging supply constraints due to less investment in new fossil fuel projects or extensions of existing ones due to ESG concerns.
Then there’s Trump and his bullish stance on US oil production or ‘liquid gold’, as he calls it. The oil market can be volatile, but improving global demand and production cuts by OPEC+ members this decade should aid FUEL.
Chart 3: Betashares Global Energy ETF
- Roundhill Sports Betting and iGaming ETF (NYSEArca: BETZ)
Traded in the US, BETZ is the world’s largest gambling ETF. It tracks the Morningstar Sports Betting and iGaming Select Index.
Long-term readers might recall I wrote favourably about Flutter Inc, the US-listed international sports betting giant, two years ago in this report. Flutter owns Sportsbet in this market, FanDuel in the US and other global betting brands.
Flutter has soared threefold in the past 18 months as demand for sports betting, particularly in the US, grows.
My interest in Flutter was based on the changing US regulatory environment that had legalised sports betting. The Economist this month had a fascinating report on the boom in US sports betting and how it has much further to run. Even more remarkable was The Economistarguing growth in US online betting is a good thing for that country!
BETZ notes Goldman Sachs’ forecast of 40% compound annual growth for US online sports betting from 2018 to 2033. That’s off a low base, so should be treated with care. But the legalised US sports betting market is still in its infancy.
Flutter is BETZ’s largest stock holding. Other key holdings include DraftKings Inc and Playtech Plc. BETZ is up 23% over one year but has further to go to get back to its peak price in 2021. One for the punters.
Chart 4: Roundhill Sports Betting and iGaming ETF
- Global X US Infrastructure Development ETF (ASX: PAVE)
Launched in June 2024, PAVE provides exposure to a diversified portfolio of 99 companies involved in the US infrastructure sector.
I wrote positively about PAVE soon after the ETF launched, It is up 22% in six months – a good result for an ETF that tracks US infrastructure stocks.
For an advanced economy, it’s amazing how many ageing, dilapidated infrastructure assets, such as roads and bridges, exist in the US. The US government, through various acts, has committed almost US$1 trillion to fund its ageing infrastructure. Trump promised to increase investment in US infrastructure if he won the US Presidential election in November.
Global infrastructure is a useful asset for long-term portfolio investors, particularly those seeking more defensive investments. Few large infrastructure stocks remain on ASX these days, making PAVE a useful tool for exposure to that sector.
Chart 5: Global X US Infrastructure Development ETF
- iShares China Large-Cap ETF (ASX: IZZ)
Fewer investors wanted anything to do with Chinese equities in 2024 given the dire state of its property sector, slowing growth and geopolitical and regulatory concerns. That was until the Chinese government in October attempted to stimulate its economy.
As Indian equities rallied, Chinese equities have gone the other way. Yes, China’s economy has prolonged problems, but valuations on the largest Chinese companies traded on the Hong Kong Stock Exchange are relatively low in relation to comparable companies in tech and other sectors overseas.
The iShares China Large-Cap ETF, which tracks an index of 50 Hong Kong-listed stocks, is my preferred tool for exposure to Chinese equities via ASX. For all the negativity about Chinese equities, IZZ is up about 25% over one year.
IZZ is an interesting idea for experienced investors who understand the risks of investing in China. This is not an idea for conservative investors or the risk averse. Chinese equities are horribly out of favour – but that’s the opportunity for contrarians who look through short-term news to company valuations.
Chart 6. iShares China Large-Cap ETF (ASX: IZZ)
Tony Featherstone is a former managing editor of BRW, Shares and Personal Investor magazines. The information in this article should not be considered personal advice. It has been prepared without considering your objectives, financial situation or needs. Before acting on information in this article consider its appropriateness and accuracy, regarding your objectives, financial situation and needs. Do further research of your own and/or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article. All prices and analysis at 11 December 2024.
