Are Your Favorite ETFs All They’re Cracked Up To Be?

Are Your Favorite ETFs All They’re Cracked Up To Be?
Carl Hazeley

over 2 years ago3 mins

  • The Global X Lithium & Battery Tech ETF is a good way to bet on the future of electric vehicles and battery technology.

  • The Roundhill Ball Metaverse ETF plays on an exciting theme, but doesn’t offer much more than a broad-based technology ETF for seven times the price.

  • Vanguard Total Stock Market ETF offers low-cost access to the US stock market, and it’s a good way to invest over the long term.

The Global X Lithium & Battery Tech ETF is a good way to bet on the future of electric vehicles and battery technology.

The Roundhill Ball Metaverse ETF plays on an exciting theme, but doesn’t offer much more than a broad-based technology ETF for seven times the price.

Vanguard Total Stock Market ETF offers low-cost access to the US stock market, and it’s a good way to invest over the long term.

Mentioned in story

Last week, thousands of Finimizers shared the exchange-traded funds (ETFs) they're most excited about in our group chats (you can join via the Community tab below). So let’s take a look at the ones you’re backing, and explore whether you’re onto something.

Global X Lithium & Battery Tech ETF (ticker: LIT)

What does it invest in? Companies that span the entire lithium cycle, from mining and refining the metal through to battery production. It has an expense ratio of 0.75%.

Why are Finimizers buying this ETF? They’re mostly excited about the sheer growth potential of electric vehicles (EVs). Batteries are arguably the most important part of any EV, and lithium’s a key component in their manufacture.

Is this a smart play? I don’t disagree with the thinking here: the EV industry is growing fast, and the metal’s also super important for renewable energy storage and mobile devices. And since you can’t buy into the metal directly (lithium isn’t a tradable commodity), LIT is, for my money, one of the best ways to play this theme. Just bear in mind that almost half the fund is invested in Chinese stocks, so you could be in for a bumpy ride in the short term.

Roundhill Ball Metaverse ETF (ticker: META)

What does it invest in? Companies that are actively involved in the “metaverse”: networking, computing, virtual platforms, payments and interchange, hardware, and content and ID services. It has an expense ratio of 0.75%.

Why are Finimizers buying this ETF? Ever since Facebook announced its name change to Meta Platforms, Finimizers aplenty have been exclaiming that “the metaverse is the future!” Those among you hot on virtual reality’s future are making metaverse bets too.

But perhaps the biggest reason you’re getting excited about the metaverse is “web 3.0”, or the decentralized web.

Evolution of the decentralized web
Evolution of the decentralized web

And you’re right to be excited. Chances are a decentralized web would give users more control over their data, be more niche in its applications (it’s unlikely there’ll be as many super-app type companies), leverage individual creators more, create new and more direct distribution channels, and offer greater flexibility on payments.

Is this a smart play? Sorry, Finimizers, but while the potential of the metaverse is undoubtedly exciting, there’s arguably a lot wrong with this particular ETF. First, it was only launched at the end of July, so it has no performance record to speak of. Second, the fund has a huge overlap with the US large-cap tech index, given that some of its constituents – Microsoft, Meta, Amazon – are among the biggest companies in the world.

Source: Morningstar.
Source: Morningstar.

In other words, you’re paying a 0.75% expense ratio for an ETF whose performance you’d probably easily mimic via the much cheaper Vanguard Information Technology ETF (expense ratio: 0.1%) or iShares U.S. Technology ETF (expense ratio: 0.43%). Cynically, this ETF is a marketing tactic that’s hoping to attract your investing dollars based on its name, without actually offering any differentiated exposure.

Vanguard Total Stock Market ETF (ticker: VTI)

What does it invest in? This market-cap-weighted ETF aims to track the performance of the entire US stock market. It has an expense ratio of 0.03%.

Why are Finimizers buying this ETF? It’s diversified across large and small, “growth” and “value” US stocks, boasts a very low expense ratio, and has a long and consistent track record.

Is this a smart play? Owning this ETF is like owning a slice of every major company in the US, and it almost follows Warren Buffett’s advice to simply buy a low-cost S&P 500 index fund. For my money, this is a good bet as far as stock market investments go: low costs don’t eat away at your profits, diversification stops you from being too heavily at the mercy of a single trend or company, and since the average value of stocks goes up in the long run, you’ll be well-placed to profit.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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