3 ASX ETFs to Consider Replacing CBA Shares with

Investors can consider selling Commonwealth Bank of Australia (CBA) shares and rotating into diversified exchange traded funds (ETFs) such as iShares S&P 500 ETF, Vanguard Australian Shares Index ETF, and Vanguard Australian Shares High Yield ETF to spread risk and gain exposure to quality blue-chip companies and attractive income potential. These ETFs offer a broad portfolio of Australian and international companies, smoothing returns and providing a diversified stream of franked dividends.

As investors brace for potential interest rate cuts by the Reserve Bank of Australia (RBA), it may be prudent to reassess portfolio allocations. Given the expected rate cuts, which could lead to a decrease in the value of Commonwealth Bank of Australia (CBA) shares, investors might consider selling these shares and rotating into diversified exchange-traded funds (ETFs). This strategy can help spread risk and gain exposure to quality blue-chip companies and attractive income potential.

Selling CBA Shares

The RBA is widely expected to cut the cash rate by 25 basis points on Tuesday, August 12, with more rate cuts to come [1]. This expected move could impact CBA shares, as lower interest rates typically lead to decreased profitability for banks. Additionally, the Big Four banks, including Commonwealth Bank, have forecasted further rate cuts, suggesting that the current environment may not be favorable for bank stocks.

Rotating into ETFs

Investors can consider rotating into diversified ETFs to achieve a more balanced portfolio. Three income-focused ETFs that could provide steady passive income and long-term market exposure are:

1. Vanguard Australian Shares High Yield ETF (ASX: VHY)
- This ETF is designed to deliver a high level of franked dividend income from a portfolio of Australian shares with above-average forecast yields. It is heavily weighted toward the ASX's biggest dividend payers across financials, resources, and telecoms.

2. Vanguard Australian Shares Index ETF (ASX: VAS)
- This ETF offers broad exposure to the S&P/ASX 300 Index, providing investors with a slice of Australia's biggest companies. It includes top holdings such as CBA, BHP Group Ltd (ASX: BHP), and Westpac Banking Corp (ASX: WBC).

3. Betashares Global Royalties ETF (ASX: ROYL)
- This ETF takes a unique approach by investing in global royalty companies that earn revenue from intellectual property, natural resources, and royalty streams. It includes top holdings such as Wheaton Precious Metals Corp (NYSE: WPM) and Universal Music Group NV (AMS: UMG).

Benefits of ETFs

ETFs offer several benefits, including diversification, professional management, and regular distributions without the need to pick individual dividend stocks. By investing in these ETFs, investors can achieve a more diversified portfolio that includes both Australian and international companies, smoothing returns and providing a steady stream of franked dividends.

Conclusion

Given the expected interest rate cuts and the potential impact on CBA shares, investors may wish to consider selling their CBA shares and rotating into diversified ETFs. This strategy can help spread risk, gain exposure to quality blue-chip companies, and achieve attractive income potential.

References

[1] https://au.finance.yahoo.com/news/commonwealth-bank-westpac-nab-anz-reveal-interest-rate-cut-forecasts-ahead-of-rba-meeting-200050110.html