As an investment vehicle, an exchange-traded fund (ETF) typically provides low-cost, highly liquid, highly diversified and immediate exposure to specific asset classes.

At the end of August 2020, there were more than 200 exchange-traded products listed on the ASX – more than twice as many options as there were just five years ago. And exchange-traded products represented an all-time high of more than $70 billion of assets under management.

That means it’s becoming harder to evaluate what are the best Australian ETFs.

Six Park’s investment team spends significant time analysing the best ETFs in Australia and regularly reviews Australian ETF performance to ensure the ETFs we use to construct our clients’ investment portfolios are the best in the market.

Here we have chosen the top ETFs in Australia covering different asset classes from reputable issuers such as Vanguard Australia, Blackrock, Betashares, State Street and Van Eck.

 

Best ETFs Australia – ETF Comparison

Australian Shares

ETF
State Street S&P/ASX 200 Fund
Ticker
STW
Focus
Australia’s first ETF. Tracks the 200 largest and most liquid publicly listed entities in Australia
Examples of top holdings 
CSL, Commonwealth Bank, BHP Billiton, Westpac, NAB, ANZ, Woolworths, Wesfarmers, Telstra, Transurban
Why we assess this as the best ETF for Australian Shares

  • Oldest, one of the largest & most heavily traded ETFs which tracks the ASX200 index. The ASX200 is recognised as the primary investable benchmark in Australia.
  • Tight spreads (0.05%) and low tracking error (averaging approximately 0.1% since inception)
  • Rated “Very Strong” by S&P

International Shares (Unhedged)

ETF
Vanguard MSCI Index International Shares ETF
Ticker
VGS
Focus
Unhedged exposure to more than 1500 securities across 22 of the world’s major developed economies
Examples of top holdings
Microsoft, Apple, Amazon, Alphabet, Facebook, Johnson & Johnson, Nestle SA, JP Morgan Chase, Visa, Procter and Gamble Co
Why we assess this as the best Australian ETF for Unhedged International Shares

  • Exposure to the world’s largest companies listed in major developed countries (ideal basis for an ex-Australia global asset class)
  • Very low MER (management expense ratio) and minimal tracking error
  • Growing FUM (funds under management) with a very large ($12bn) underlying fund with a long operating history
  • Australian domiciled structure simplifies withholding tax administration
  • Two reputable market makers helps ensure liquidity/competition/fair pricing vs NAV (net asset value)

International Shares (Hedged)

ETF
Vanguard MSCI Index International Shares (Hedged) ETF
Ticker
VGAD
Focus
Hedged exposure to more than 1500 securities across 22 of the world’s major developed economies
Examples of top holdings
Apple, Microsoft, Alphabet, Amazon, Facebook, JP Morgan Chase, Johnson & Johnson, Visa, Nestle SA, Procter & Gamble
Why we assess this as the best Australian ETF for Hedged International Shares

  • We view this as the best ETF to buy for exposure to the world’s largest companies listed in major developed countries (ideal basis for an ex-Australia global asset class)
  • Very low MER and minimal tracking error
  • Australian domiciled structure simplifies withholding tax administration
  • Hedged foreign exchange position provides protection from possible negative impacts of currency fluctuations

 

Global Listed Property

ETF
SPDR Dow Jones Global Real Estate Fund
Ticker
DJRE
Focus
Tracks a range of more than 200 real estate investment trusts (REITs) and real estate operating companies which are listed on major exchanges around the world
Examples of top holdings
Prologis, Simon Property Group, Public Storage, Welltower Inc, Avalonbay Communities, Equity Residential, Digital Realty Trust, Mitsui Fudosan, Ventas Inc, Essex Property Trust
Why we assess this as the best Australian ETF for Global Listed Property

  • Large, low-cost and liquid Australian ETF that provides exposure to global listed property assets
  • Provides diversified exposure across REIT assets in more than 15 countries
  • Underlying holdings are broadly spread across retail, industrial, office, healthcare and other market segments
  • Australian domiciled structure simplifies withholding tax administration

Global Infrastructure

ETF
VanEck Vectors FTSE Global Infrastructure (Hedged) ETF
Ticker
IFRA
Focus
Invests in a diversified portfolio of infrastructure securities listed on exchanges of developed countries around the world
Examples of top holdings
Nextera Energy, Transurban Group, American Tower Corp, AENA SME SA, Atlantia SPA, Southern Co, Duke Energy Corp, Enbridge, Dominion Energy, Crown Castle International
Why we assess this as the best Australian ETF for Global Infrastructure

  • We see this as the best Australian ETF for exposure to a traditionally defensive, stable income asset class that has historically had very low correlation to other asset class movements
  • Broad and comprehensive underlying index
  • Highly diversified mix of securities and sub-sectors
  • Hedged structure minimises currency exposure
  • Two reputable market makers helps ensure liquidity/ competition/fair pricing vs NAV

Emerging Markets Shares

ETF
Vanguard FTSE Emerging Markets Shares ETF
Ticker
VGE
Focus
Provides exposure to 21 of the world’s emerging economies across Asia, Latin America, Europe, Africa and the Middle East
Examples of top holdings
Alibaba, Tencent, Taiwan Semiconductor Manufacturing, Samsung, China Construction Bank, Naspers, Ping An Insurance Group, Reliance Industries, Housing Development Finance Corp, China Mobile
Why we assess this as the best Australian ETF for Emerging Markets Shares

  • Provides exposure to more than 3,500 shares listed on the exchanges of more than 20 of the world’s emerging economies
  • Growing FUM with a very large ($12bn) underlying fund with a long operating history
  • Low relative MER for an emerging market offering
  • Australian domiciled structure simplifies withholding tax administration
  • Two reputable market makers helps ensure liquidity/competition/fair pricing vs NAV

Australian Fixed Income/Bond

ETF
iShares Composite Bond ETF
Ticker
IAF
Focus
Invests primarily in investment grade fixed income securities
Examples of top holdings
Variety of fixed income securities issued by Australian Federal and State Governments and certain investment grade non-government entities
Why we assess this as the best ETF for Australian Fixed Income/Bond

  • Competitive MER and spreads relative to other bond ETF providers
  • One of the largest and most liquid bond ETFs in Australia

High Yield Cash Assets

ETF
BetaShares Australian High Interest Cash ETF
Ticker
AAA
Focus
Invests all its assets in high-interest bank deposit accounts with selected major banks in Australia
Examples of top holdings
Mix of at-call, notice account and term deposits (up to 90 days maturity) across major banks.
Why we assess this as the best ETF for High Yield Cash Assets

  • Only ETF in Australia that provides exposure to actual bank/cash instruments
  • Large FUM and highly liquid
  • Low fees 
  • Tight spread (daily bid:ask 0.02%)
  • Two reputable market makers helps ensure liquidity/competition/fair pricing vs NAV

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How Six Park chooses the best ETFs

ETFs can vary in a number of important ways. Six Park’s ETF comparison analysis considers factors such as:

  • Cost;
  • Performance;
  • Liquidity;
  • Spreads; and
  • The track record of the ETF and its issuer.

The first consideration when evaluating ETFs should be what asset classes you want to include in your portfolio.That means determining the asset classes that you need exposure to, and in what proportions.

At Six Park, we start with a mean-variance optimisation model, which in simple terms is a data-driven process designed to determine the best asset mix for a given level of volatility or risk.

Once the asset allocations are decided upon, we then move to considering which ETF is best for the asset classes that have been selected.

Factors to consider include:

Cost

Issuers have to disclose the MER on each ETF and this fee  (borne by the ETF) will be reflected in the price you pay.

ETFs are also required to separately disclose their net transactional and operational costs. These are the costs incurred by the funds for things like brokerage charges (for buying and selling the assets held by the ETF) and foreign exchange associated with the trading activities of the funds. As these costs are paid out of the assets of the ETF, they will be ultimately reflected in the ETF’s price.

Liquidity

It’s important to understand the assets you’ll be buying in an ETF and how liquid they are – that is, how easily can the ETF be quickly bought or sold at a price that closely reflects its intrinsic value. That will influence performance as well as the risk.

For instance, if you’re buying ASX200 stocks, they’re typically very liquid, so if you need to get out quickly, you still see pretty deep liquidity. But if you’re buying more esoteric exposures, it’s more difficult for the market makers to price those assets (as the underlying holdings in the ETF basket are less liquid) and that will be reflected in the prevailing prices and spreads.

Less liquid assets don’t trade as often so the price you may be able to sell at may be quite different to the last traded price.

Fund Structure

ETFs that are structured as “locally domiciled trusts” minimise the administrative burden on our clients who otherwise might have to file various overseas tax documents.

Some ETFs also lend out their underlying securities to institutional investors who might be seeking to short sell a stock (i.e. borrow a stock to sell it in the hope of buying it back cheaper in the future). Securities lending can modestly enhance an ETF’s return by bringing in extra fees, but it does introduce an element of additional risk.

Track Record of the ETF and its issuer

Most of Australia’s ETF issuers are large and well established, have decent processes in place and have products that are commercially viable and acceptable. If everything else is equal, choose a larger ETF because once a fund reaches critical mass, there is less risk of them increasing their fees to cover costs or potentially even closing down and returning investor funds.

 

Can I choose the best Australian ETFs myself?

It might be easy to choose an ETF – but it’s not easy to be confident you’re choosing the best ETF.

At Six Park we provide multiple layers of service at a very low cost. First, there’s the asset allocation expertise, then there’s ETF selection, then we monitor the investments and the assets and ensure portfolios are rebalanced and are staying true to the underlying investment strategy.

It’s not impossible to do it yourself, but there’s a significant level of time and expertise involved in doing it well.

Six Park researches the best ETFs available then builds your personalised portfolio based on your investment time frame and attitude and capacity for risk.

Interested in ETF investment? To receive a personalised investment recommendation, click the “Get started” button below to take our free risk assessment. 

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