Why ETF investing beats a struggling ASX

As the ASX faces headwinds, ETF investing is giving Australian investors access to better opportunities elsewhere.

Dion Hershan is not a man to mince words. If you don’t know the name, he’s the head of Australian equities at Yarra Capital.

The Australian Financial Review reports him as saying that “Australia’s long period of economic mediocrity is being badly exposed by the war in Iran”.

Can’t fault him on that really. It gets worse if you’re investing in stocks on the ASX.

Yarra Capital is expecting more downgrades to come as the fallout continues via higher costs, lower consumer spending and, most importantly, weakening profits.

Already we’ve seen multiple companies hit such as Qantas (ASX: QAN), Worley (ASX: WOR) and the banks raising their provisions for higher bad debts. You need to tread carefully if you’re buying individual shares. Stocks can get hit badly when they disappoint. We saw no better example of that recently than Cochlear (ASX: COH) falling a staggering 40% after its latest update.

Does that mean there’s no opportunity for profit?

Not at all.

The ETF market is getting bigger by the week

In fact, the range of investable markets is expanding fast. Case in point is the latest facts and figures about exchange-traded funds (ETFs). State Street expects these to grow to $380 billion under management in 2026. That’s up from just $71 billion in 2020. More importantly for you and I, they estimate that there will be 500 to choose from on the ASX by the end of the year.

ETFs are a great way to get exposure to a thematic or sector that an Australian company can’t offer.

One case in point – among many – is the most important industry in the world these days: semiconductors. Australia doesn’t produce these. But companies in the US and Taiwan sure do. One way to invest in these on the ASX is via the Global X Semiconductor ETF (ASX: SEMI). This gives you a basket including all the major producers.

Now, I’m not saying you should literally buy SEMI. That’s personal financial advice and I can’t give that to you. All I’m saying is thanks to the ETF market you have the choice to discuss with your financial advisor.

What’s true of SEMI is also true of investing in – arguably more exciting markets – the Nasdaq or Bitcoin or lithium battery makers in Asia.

Looking beyond Australia

Investing in the share market is primarily about industries and companies producing higher growth than the general economic rate. Unfortunately, the ASX and Australia aren’t really firing on all cylinders here, as we noted above. That means looking further afield to the abundant opportunities elsewhere.

Of course, there’s no such thing as a slam dunk in investing. Overseas markets have risks too.

That said, look at the current market dynamic. We can roughly divide the world into two components right now. There are those who are “winners” from the current energy disruption. Then there are those who can benefit most from the AI megatrend.

Unfortunately, Australia and the ASX are on the wrong side of both here. Our energy security is now exposed as weak. And the AI industry and ecosystem are largely being built elsewhere. The same is true of the EU.

These basic premises mean that the US indices are still more likely than not to outperform Australia over the next 12 months. Markets in China are also becoming tempting to some. China offers a big domestic market, plus AI and tech comparable to their US counterparts but at cheaper valuations.

If anything, we’re all spoiled for choice. Here at Marcus Today, our Strategy Portfolio is built with nothing but exchange-traded funds. We invite you to consider how you can make this kind of strategy work for you. Please consider taking a free trial today to find out more.