Now could be the right time to run the rule over the iShares Core S&P/ASX 200 ETF (ASX: IOZ) and Vanguard Australian Property Securities Index ETF (ASX: VAP). Using our internal quantitative analysis, these ETFs appear to offer good exposure to the Australian shares sector.
What do they do?
The iShares IOZ ETF provides exposure to the largest 200 Australian shares, based on market capitalisation. This is a low-cost way to access top Australian companies through a single fund.
The Vanguard VAP ETF provides investors with low-cost exposure to listed Australian property companies and real estate investment trusts (REITs).
To learn more about the IOZ ETF, read our free ETF investment report once you’re done with this article.
To make this article easier to digest, we’ll just study the fees or ‘management expense ratio’ (MER). Using data for December 2020, the IOZ ETF has an MER of 0.09% while the VAP ETF had a yearly fee of 0.23%. As a result, IOZ 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 divide 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.
Performance is important. 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 good return one year just to generate poor 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 IOZ ETF had an average annual return of 7.77%. During the same time, the VAP ETF returned 6.07%.
Lastly, we need to consider the issuer or provider of the ETF. There are too many factors that go into our internal scoring of fund providers to detail here (you’d get bored pretty quickly). So here’s the quick version. As you guessed, the issuer of the VAP ETF is Vanguard. Vanguard ranks highly for our scores of ETF providers and issuers in Australia. We consider Vanguard to be in Australia’s top three ETF providers for retail investors, advisers and institutions.
In summary, the VAP ETF ranks better against our internal scoring methodology but not by much compared to IOZ.
Please, keep in mind, there is much more to picking 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…