The Vanguard Australian Shares Index ETF (ASX: VAS) and iShares Core S&P/ASX 200 ETF (ASX: IOZ) are exchange-traded funds (ETFs) operating in the Australian shares sector, and aiming to make investing as simple as possible.
How the VAS and IOZ ETFs fit in a portfolio
The Vanguard VAS ETF provides exposure to the largest 300 Australian shares, based on market capitalisation. This is a low-cost way to access top Australian companies through a single fund.
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.
See our ASX IOZ report – it’s totally free.
Okay, so we know what they’re designed to do, the sectors and strategies. Now what? One of the quick ways to compare ETFs like IOZ and VAS is to study the fee load. No one likes paying high fees if they don’t need to. Here at Best ETFs and Rask Austalia, we begin by analysing the fees and ‘all in’ costs of an ETF or fund. Our team will score ETFs based on management fees, plus any other costs, then put them into quartiles by sector, strategy and across the entire ETF market.
To make this article easier to digest, we’ll just study the fees or ‘management expense ratio’ (MER). Using data for July 2021, the VAS ETF has an MER of 0.10% while the IOZ ETF had a yearly fee of 0.09%. So, IOZ wins on this metric. Keep in mind, a more insightful 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 put 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.
Let’s look at the past results. 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 strong return one year just to generate weak 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 July 2021, the VAS ETF had an average annual return of 11.03%. During the same time, the IOZ ETF returned 10.55%.
One final point: the ETF provider is important. In Australia, we believe there are a handful of stand-out ETF providers and many that are mid-pack or very fresh. As you guessed, the provider backing the VAS ETF is Vanguard. And 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. IOZ’s ETF provider on the ASX is iShares. iShares ranks highly for our scores of ETF providers and issuers in Australia. We consider iShares to be among the best ETF providers in Australia and globally.
What it all means
In summary, the VAS ETF rates better for our internal scoring methodology but not by much compared to IOZ.
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…