Now could be an opportune time to run the rule over the SPDR S&P/ASX 50 ETF (ASX: SFY) and Vanguard MSCI Australian Small Companies Index ETF (ASX: VSO). Using our internal quantitative analysis, these ETFs appear to offer attractive exposure to the Australian shares sector.
Getting to know the VSO and SFY ETFs
The SPDR SFY ETF is the only Australian ETF providing exposure to Australia’s top 50 listed companies, by market capitalisation. SFY provides a low-cost way to invest in the ASX’s top 50 companies through a single fund.
The Vanguard VSO ETF provides exposure to a diversified portfolio of Australian small caps and tracks the MSCI Australian Shares Small Cap Index. This is a low-cost way to access the performance of Australian small-cap shares through a single fund.
Note: you can continue learning about the VSO ETF on our report page. ASX VSO 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 SFY ETF has an MER of 0.29% while the VSO ETF had a yearly fee of 0.30%. As a result, SFY 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 SFY ETF had an average annual return of 7.56%. During the same time, the VSO ETF returned 9.50%.
Best ETFs Takeaway
In summary, the VSO ETF ranks higher against our internal scoring methodology and by quite some distance against SFY.
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…