Best Australian Share ETFs

GOLD WINNERS ISHARES, SPDR, VANECK AND VANGUARD These portfolio building blocks deliver diversification at a low cost

This year’s gold ETF winners – iShares Core S&P/ASX 200, SPDR S&P/ASX 200, Vanguard’s Australian Shares Index, VanEck Vectors Australian Equal Weight – all performed well over the year, boosted by a solid Australian sharemarket.

The VanEck Vectors Australian Equal Weight ETF has performed more strongly than the three other pure index winners this year because its equal weighting strategy was more successful when the share prices of the banks and AMP fell.

The VanEck fund isn’t a pure index ETF but is a rules based product that tracks a specially designed index. It follows the performance of the 60 largest and most liquid ASX-listed companies across all sectors and weights them equally. An equal weighting approach is designed to reduce concentration risk to sectors such as financials and resources because it is indifferent to market capitalisation. The fund has benefited from a lower weighting to the big four banks and AMP, which have been hit hard by the damning revelations from the royal commission into misconduct in banking, superannuation and financial services. It charges a fee of 0.35%.

The other three winning ETFs follow the Australian sharemarket perfectly with SPDR and iShares tracking Australia’s top 200 shares and Vanguard covering more mid-cap stocks by following the top 300 shares. These broadly diversified index trackers are good building blocks for any investor’s portfolio.

The winners reap the benefits of investing in dividend-paying companies with franking credits. The SPDR fund’s dividend was around 4.5% and iShares 4.19% at the end of October 2018. Vanguard paid out 4.99% the end of September 2018.

These three are popular because they are straightforward, plain vanilla index ETFs. SPDR, the longest-standing ETF listed on the ASX with a 17-year history, has attracted $3.4 billion in funds while Vanguard, launched eight years ago, has $2.4 billion. The iShares fund has $723 million.

They enjoy very low turnover, which keeps capital gains tax down for investors.

All three have low costs: Vanguard charges an investment management fee of 0.14% a year, iShares charges 0.15% and SPDR charges 0.19%.