Now could be the right time to take a look at the Vanguard MSCI Australian Large Companies Index ETF (ASX: VLC) and iShares S&P/ASX 20 ETF (ASX: ILC). Using our internal quantitative analysis, these ETFs seem to offer attractive exposure to the Australian shares sector.
Here’s how we think about the VLC and ILC ETFs
The Vanguard VLC ETF provides exposure to the MSCI Australian Shares Large Cap Index. This index is a ‘free float-adjusted market capitalization index’ which provides investors with exposure to the largest companies on the ASX.
The iShares ILC ETF provides exposure to the largest 20 Australian stocks, giving you targeted exposure to Australian blue-chip companies. This is a low-cost way to access top Australian companies through a single fund.
Get our team’s VLC ETF review, available free when you click this link: access the free investment report.
To make this article easier to digest, we’ll just study the fees or ‘management expense ratio’ (MER). Using data for December 2020, the VLC ETF has an MER of 0.20% while the ILC ETF had a yearly fee of 0.24%. As a result, VLC comes out on top. Keep in mind, a more useful metric to know is the fee quartiles that these ETFs find themselves in (note: quartile 1 is best). Meaning, we take all the Australian shares ETFs in our database and classify them into 4 quartiles, based on their fees. For example, any ETF which has a fee below 0.3% would be considered in our first (best) quartile.
How we study past performance
Time to look at past returns. Keep in mind, performance isn’t everything — and past performance is not indicative of future performance. It’s just one part of a much bigger picture. The reason we say performance is not everything is because of volatility of financial markets and the economy from one year to the next. Some ETFs and funds can put in a attractive return one year just to generate unsatisfactory returns the next time around. That’s why we prefer three-year or seven-year track records over one-year track records. It can smooth out the temporary performances caused by external factors. Both ETFs have achieved our three-year performance hurdle. As of December 2020, the VLC ETF had an average annual return of 8.83%. During the same time, the ILC ETF returned 8.64%.
In summary, the ILC ETF ranks higher against our internal scoring methodology but not by much compared to VLC.
Please, keep in mind, there is much more to choosing a good ETF. That’s why you should now use these skills to find the best ETF you can. If you want the name of our team’s top ETF pick for 2021, keep reading…