ETFs or Exchange Traded Funds is a name given to a bundle of assets where the entire fund can easily be traded on the stock exchange like any ordinary share. ETFs are available across a range of asset classes and each have unique goals and holdings. As such it is important to ensure the fund’s goals and holdings align with your own. For example, there are a total of over 200 different ETFs available on the ASX.
Since ETFs hold a bundle of assets they are highly sought after as an efficient form of diversification. As many ETFs use a passive indexing investment strategy the management costs can be reduced. With 86.69% of actively managed funds failing to outperform the ASX 200 index in a year (Check out the SPIVA-S&P indices versus active), this makes ETFs a very valuable part of any portfolio, but which ones do we recommend?
ETF’s We Recommend
Here at Prophet Invest, we believe in broad market ETFs, this means ETFs which track indices such as the S&P 500 or ASX 200 rather than things like technology sector ETFs.
Australia is simple there are three ETF options we recommend: VAS, A200, IOZ. All of these are very low-cost options ranging from 0.7%-0.1%. Picking any one of these is a good option for an Australian index ETF.
Here’s a look at the most popular international ETFs
| VGS | Van. MSCI Index Int. shares World ex AUS | 1.7B | 0.18% | U |
| IWLD | iShares Core MSCI World All Cap ETF | 90.7M | 0.16% | U |
| VTS | Van. US total Market Shares Index ETF | 1.7B | 0.03% | U |
| IVV | iShares S&P 500 ETF | 3.1B | 0.04% | U |
| IHOO | iShares Global 100 AUD Hedged | 45.7M | 0.43% | H |
| IOO | iShares Global 100 ETF | 1.6B | 0.4% | U |
| IHVV | iShares S&P 500 AUD Hedged ETF | 195M | 0.10% | H |
| WXOZ | SPDR S&P World ex Aus. | 192.2M | 0.30% | U |
| VGAD | Van. MSCI Index Int. Shares Hedged | 632.5M | 0.21% | H |
| VDHG | Van. Diversified High Growth Index ETF | 175.3M | 0.27% | H |
| QUAL | VanEck Vectors MSCI World Ex Aus Quality | 633.1M | 0.40% | U |
Depending on your desired area of exposure any of these can be a good idea. From these, here are our favorite three in more detail.
| VGS | VTS | IVV | |
| Fee | 0.18% | 0.03% | 0.04% |
| Turnover rate | 0.67 | 4.0 | 5.0 |
| Inception | 2014 | 2009 | 2000 |
| Market Cap | 2.1B | 1.9B | 3.5B |
| Share Price | $82 | $237 | $468 |
| Exposure | US-68.1% EUR-21.4% Asia-10.4% | US-100% | US-100% |
| Top 10 holdings | 14.2% | 19.6% | 22.34% |
| No of Holdings | 1591 | 3525 | 500 |
| Distributions | Quarterly | Quarterly | Quarterly |
| 1 Year | 23.77% | 24.56% | 25.04% |
| 5 Year | 13.08% | 15.88% | 16.12% |
| 10 Year | – | 16.91% | 16.81% |
| Domicile | Aus | US | Aus |
However, it fully depends on your preference. For full disclosure we hold VAS and IVV.
Whichever ETF you’re looking at run it through our ETF checklist:
The ETF Checklist:
| Does the ETF capture the exposure and companies you are hoping to achieve? |
| Consider how the index is weighted (Market-capitilsation, fundamentally weighted, equally weighted or other), does this match with your needs? |
| Are the indexes holdings clearly documented? |
| Are the fees reasonable and competitive? |
| How long has the fund existed? |
| What is the market capitalisation/assets under management of the Fund? |
| Does the funds returns mirror the returns of the Index it is tracking? |
| Are the underlying holdings representative of the index it is tracking? |
| Does the fund hold the individual companies or is it holding derivatives or synthetics? (these can add risk) |
| Is the turnover/rebalancing of the fund relatively small? Excessive rebalancing can incur further tax burdens |
| Is the bid-ask spread relatively narrow? |
| Are there any hidden additional fees? |
| Does the fund have a large amount of average daily volume? |
| Is the ETF provider well known and experienced? |
| Does the company have many resources and education products available to assist the investor where needed? |
Some of this information including our ETF checklist was sampled from our book; PROPHET Invest: The Gateway to Investing. For this and more information check it out today.
ETF Where to Buy?
Check out the CHESS Sponsored brokers we recommend:
