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Exchange-traded funds (ETFs) are excellent ways for investors to consider gaining exposure to growth shares.
Spreading one’s capital over dozens, hundreds, or even thousands of shares protects returns from company-specific blow ups. What’s more, growth stocks can be prone to significant price swings, which a fund can soften thanks to that broad diversification.
Finally, an ETF offers a far simpler and less time-consuming route to investing in growth shares. Holdings are determined either by tracking a pre-set index or by an expert fund manager, saving investors the trouble of choosing individual stocks.
With this in mind, here are two top funds to consider this November. I hold both in my own portfolio.
Lock it down
Tech shares like Nvidia, Amazon, and Microsoft are getting a lot of love on high hopes for the artificial intelligence (AI) sector. Nvidia has in recent days become the first $5trn stock in history. It took out the $4trn milestone as recently as July.
There is a danger, though, that the sky-high valuations of some AI players leave them vulnerable. Others say these companies’ enormous growth potential merits their premium ratings. Still, a potential correction is worth bearing in mind.
For my money, a tech-focused ETF focused on cybersecurity shares could be a better option to consider. The iShares Digital Security ETF (LSE:LOCK) is actually the most recent fund I’ve purchased for my Self-Invested Personal Pension (SIPP).
With a price-to-earnings (P/E) ratio of 30.3 times, its valuation is far more attractive than some AI-based funds. The iShares Future AI & Tech ETF by comparison carries a heavier earnings multiple of 43.6.
Don’t go thinking that this digital security fund has poorer growth potential than its AI cousin, however. Holding 110 tech shares like Ciena, CrowdStrike, and Cloudflare, it’s actually delivered a superior average annual return of 11.7% during the last five years.
Returns may be bumpier during economic downturns. After all, tech shares are extremely cyclical entities. But I think long-term returns will continue to impress as the digital revolution rolls on and on, bringing a steady rise in the number and severity of online threats.
Case for the defence
I’ve also added the HANetf Future of Defence (LSE:NATP) fund to my SIPP in recent months.
As its name suggests, it invests in companies that make weapons and offers other services to global armed forces. But it does so with a twist — it holds stakes in cybersecurity businesses as well, allowing it to also leverage the phenomena I’ve just described.
Since its inception in July 2023, the fund’s risen an impressive 145% in value. During what’s been a period of rapid rearmament in the West (and particularly Europe), this is perhaps no surprise. I’m expecting it to continue surging, too, as NATO nations hike their defence-spending-to-GBP targets to 5% by 2035.
In total, the HANetf product is well diversified across 60 different companies. These include heavyweight pure-play defence firms like BAE Systems, Rheinmetall, and Safran, alongside specialised tech shares including Palo Alto.
It’s an approach that helps spread (if not eliminate) sector-wide dangers like supply chain problems and rising costs.
