A basic ASX 200 ETF can look unappealing for Australian investors that have a large exposure to financial companies and banks. Could the BetaShares Australian EX-20 Portfolio Diversifier ETF (ASX: EX20) be the solution? Here’s what you need to know about this ETF.
BetaShares EX-20 ETF
The BetaShares Australian EX-20 Portfolio Diversifier ETF takes a unique approach to the idea of investing in the largest companies on the ASX.
The EX-20 ETF takes the ASX 200 and excludes the 20 largest companies. Large-cap companies are also known as “blue chips”, which the video below explains:
To see the impact of excluding the 20 largest ASX companies, you can compare it to the BetaShares Australia 200 ETF (ASX: A200).
The A200 ETF has nearly 32% of its funds exposed to financials, 17% to materials, and 10% to healthcare. Excluding the largest 20 companies changes this sector allocation dramatically. Financials drop out of the top three, making EX-20’s top three exposures materials (16%), industrials (13%) and real estate (13%).
A200’s largest holdings are companies including Commonwealth Bank of Australia (ASX: CBA) and BHP Group Ltd (ASX: BHP). In contrast, EX-20’s largest holdings are Unibail-Rodamco-Westfield (ASX: URW), Aristocrat Leisure (ASX: ALL), Coles Group Limited (ASX: COL) abd Sydney Airport Holdings Pty Ltd (ASX: SYD).
Over the last 12 months, A200 has returned 9.05% compared to only 6.22% for the EX-20 ETF.
Both of these ETF’s are relatively new but looking at the five-year performance of each of the respective indices they track, the index that excludes the top 20 companies has returned 11.94% per year compared to 7.94% per year for the full ASX 200.
On top of that, the EX-20 ETF has a 12-month distribution yield of 4.8%, compared to only 3.4% for the A200 ETF.
Fees & Risks
The EX-20 ETF charges a management fee of 0.25% per year, significantly higher than the 0.07% charged by the A200 ETF.
While the indices suggest EX-20 would have performed better over a five-year period, these results can’t be properly used to compare the two ETFs. Excluding the top 20 companies means to exclude some of Australia’s best companies such as CSL Limited (ASX: CSL) – often the largest companies are so large because they offer more stable and reliable performance.
I completely understand the desire to reduce exposure to the big four banks and other financial institutions, and the EX-20 ETF provides a viable option for doing just that. I was surprised to learn that the dividend yield is actually higher without the banks, given that banks are often treated as the best dividend investments in Australia.
The EX-20 ETF is definitely worth another look, but the higher management fee could be one drawback that holds be back from investing.
For our number one ETF pick, check out the free report below.
Disclosure: At the time of writing, Max owns shares in the BetaShares Australia 200 ETF (ASX: A200).