If you’re looking for an ASX ETF in the Australian shares sector, chances are, the iShares S&P/ASX Small Ordinaries ETF (ASX: ISO) is an ETF you’re considering.
How Australian investors can use the ISO ETF
The iShares ISO ETF provides exposure to 200 small cap Australian shares. This is a low-cost way to access small Australian companies through a single fund.
The ISO ETF is yet to reach scale
The ISO ETF had $86.52 million of money invested when we last pulled the monthly numbers. With a funds under management (FUM) or ‘market cap’ figure of less than $100 million, it’s important to consider if this ETF is still too small. We say an ETF with more than $100 million invested is typically more sustainable than one with less than $100 million (at least) because if an ETF is too small it may not be sustainable for an ETF issuer, such as iShares. However, there are exceptions to this rule of thumb, especially if the ETF issuer/provider is committed to growing the ETF’s FUM to the point where it becomes profitable.
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Don’t forget ISO fees
With a yearly management fee of 0.55% charged by iShares, if you invested $2,000 in the ISO ETF for a full year you could expect to pay management fees of around $11.00. For context, the average management fee (MER) of all ETFs covered by Best ETFs Australia on our complete list of ASX ETFs is 0.5% or around $10.00 per $2,000 invested. Keep in mind, small changes in fees can make a big difference after 10 or 20 years.
In addition to a yearly management fee, there are other costs investors must consider, including brokerage and taxes. A specific cost for ETF and mFund investors to consider is the buy-sell spread, which is the slippage or ‘invisible’ cost paid by an investor when he or she buys or sells the ETF. For the ISO ETF, the most recent average monthly buy-sell spread we gathered (May 2020) was 0.44%. Remember, the lower (or ‘tighter’) the buy-sell spread, the better. This buy-sell spread was below the average ETF spread of 0.45%, so that’s a good thing.
If you’re weighing up the ISO ETF, keep in mind that this is just a brief introduction to the ETF. Indeed, before doing anything, take a look at our free iShares ISO report. And while you’re at it, consider searching our complete list of ASX ETFs for similar ETFs in the Australian shares sector, to do a good comparison.