Best ETF Manager

Investors can save money, time and effort by backing a fund that tracks an index rather than by trying to pick the next big winner themselves or by hoping an active manager can do it for them

Exchange traded funds (ETFs) have skyrocketed in popularity over the past 10 years. According to Vanguard Australia, Money’s Best ETF Manager for 2021, the Australian ETF industry has more than $71 billion in assets under management as at October 2020.

ETFs provide investors with a liquid, mostly lowcost, diversified investment vehicle. For Vanguard Australia, these benefits drive the way it designs and constructs its products.

“We only launch products that are fairly diversified, liquid, can be offered at a low cost, can generate a real return, and for us to have some level of assurance that they’ll be used appropriately,” says Balaji Gopal, head of the personal investor business at Vanguard Australia. “All this helps us avoid investing in short-term fads.

“We start off looking at the problem that needs to be solved. That could be driven by what customers are telling us, or what trends are playing out in the marketplace.”

While Vanguard didn’t win any of the 2021 Best of the Best Exchange Traded Products outright, the fund manager heavily featured among the finalists. The Vanguard Australian Shares Index ETF (ASX: VAS) placed second in the Best Australian Share Exchange Traded Product, while the

Vanguard Australian Fixed Interest Index ETF (VAF) and Vanguard Australian Government Bond Index ETF (VGB) placed third and fourth respectively in the Best Fixed-Interest Exchange Traded Product.

A lot of the growth in ETFs is a result of the trend towards low-cost investing, and index investing has been a huge beneficiary of that.

“Most active managers are not able to outperform the index, so why not invest in the index, especially when you can invest at a fraction of the cost of active management?” says Gopal.

What’s more, ETFs provide you with easy access to markets all over the world.

Given that the index usually outperforms active managers, ETFs are becoming the go-to portfolio building blocks. You get liquidity, diversification and global exposures. The only thing left, arguably, is to work out how much you wish to allocate to different asset classes.

“[ETFs] allowed people to focus on asset allocation rather than pick the next big winner in the market, which most people can’t and will continue not to be good at,” says Gopal.

He says investors are building active portfolios using passive investments. Who ever said the two investing approaches were mutually exclusive?