ILC PDS
The Product Disclosure Statement (PDS) explains the fees, tax status and some of the risks.
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.
7 Aug 2020 | ||
Price | $39.30 |
7 Aug 2020 |
7 Aug 2020 |
ETF share prices are updated using end of day data from the ASX. FUM, fee and spread data is updated monthly, with a delay. Refer to the ETF’s PDS and the ASX website for up-to-date information.
The iShares S&P/ASX 20 ETF (ASX: ILC) is a large Australian Shares ETF that targets blue chip companies on the Australian market. However, ILC is substantially less popular than the ASX’s biggest ETF, Vanguard Australian Shares Index ETF (ASX: VAS). If you like ILC, you really should read our full analyst report for VAS.
A quick note: To discover which ETFs are our favourite, please consider becoming a premium member of Rask Core , where we provide members with our best ETFs, research on ASX-listed funds and our highest conviction ASX share ideas — for only $9.99 per month (cancel anytime!). But before you click away, please enjoy this free analyst report and then (if you like it) you can consider joining us. Click here to join.
The ILC ETF has a reasonably low management fee compared to many other ETFs on the ASX, but it’s not as cheap as VAS and the most popular Australian shares ETFs. ILC’s yearly management fee is 0.24%. This means that with every $10,000 investment, the annual cost is $24 of management fees. It’s cheap, but there are cheaper options.
ETFs don’t charge investors fees that come out of your bank account. Instead, management costs are taken out of the value of the fund automatically by the ETF provider, which in this case is Blackrock/iShares for ILC.
If you’re thinking about getting exposure to the largest ASX shares, ILC is more expensive than the BetaShares Australia 200 ETF (ASX: A200) which has a management fee of just 0.07%. While the first 20 names in the ILC ETF and A200 portfolios are very similar, ILC has bigger positions in the top 20 because the portfolio is spread across a smaller number (20) of businesses than A200 (which has 200).
In other words, for investors wanting concentrated exposure to the biggest ASX businesses for, say, dividend income, ILC could be an obvious investment. However, consider that A200 and VAS give investors more diversification.
The ILC ETF is built to track the S&P/ASX 20 ETF (ASX: XTL) – this is 20 of the biggest businesses that are listed on the ASX.
Compared to the S&P/ASX 300 Index (ASX: XKO), the index the Vanguard VAS ETF tracks, the first 20 companies are the biggest and exactly the same as the ILC ETF. Meaning, VAS owns the same 20 companies as ILC — but there’s another 280 businesses in the VAS ETF.
The ASX is a top-heavy and concentrated market. Meaning, the largest companies on the ASX are much bigger than the smallest companies. This means it ‘top heavy’. However, the ASX is also concentrated to the banking/financials and resources sectors.
Considering how much of the main ASX indices (like the ASX 200 and ASX 300) the ASX 20 businesses make up, you could choose to get similar exposure to ASX blue chips through some of the most popular ASX ETFs as part of a ‘Core’ ETF like VAS, A200, IOZ, STW, MVW, etc. We have listed some of them here, so you consider how they are different or similar. You can also watch our in-depth video: ‘top 5 Australian shares ETFs explained‘.
A quick note: To discover which ETFs are our favourite, please consider becoming a premium member of Rask Core , where we provide members with our best ETFs, research on ASX-listed funds and our highest conviction ASX share ideas — for only $9.99 per month (cancel anytime!). But before you click away, please enjoy this free analyst report and then (if you like it) you can consider joining us. Click here to join.
If you’re building out your Core, we believe ILC seems like a more expensive way to get exposure to ASX blue chips than the broad alternatives. Especially considering VAS, A200 and IOZ are predominately weighted to those big Australian companies but include more shares — for lower fees.
With an annual fee of 0.24%, ILC’s costs are noticeably higher than VAS, A200 and IOZ. What’s more, smaller businesses may be able to provide more growth potential over time, meaning that ILC could deliver less capital growth, though higher dividend income, than is possible from IOZ and others.
ILC may be most suitable as a tactical or satellite position to weight a diversified portfolio towards financials and resources. However, please keep in mind that owning both ILC and one of the broad-based alternatives (such as VAS, IOZ or A200) may create unnecessary overlap.
Given the diversified nature and long-term preference for blue chip Australian companies to pay generous dividends, ILC investors could expect a sustainable dividend yield of between 3% and 5% per year, plus some franking credits, with occasional ebbs and flows depending on the economic and resources cycles.
Remember that in Australia ETFs are required to pay back ‘capital gains’ as well as dividend income from companies. So, when an ETF’s distribution is paid to ETF investors you will receive an ‘income’ amount (from the dividends generated by companies inside the ILC ETF) and capital gains (from buying and selling by the ETF). Therefore, the ‘historical yield’ figure amount is not a true reflection of the sustainable income potential of an ETF because you are, in effect, getting some of your investment back.
Lesson: the sustainable amount of income an ETF will generate over many years should exclude capital gains amount paid back to investors as they are not always tax effective.
Practical tip: study the types of distributions paid by an ETF, consider the types of companies it is invested into, and do not rely solely on the ‘historical yield’ figures on our website, the ETF provider’s website or the ASX website.
The risk level of the ILC ETF is fairly similar to other ASX-focused ETFs, such as VAS, IOZ or A200 because the ILC portfolio weightings are not that different. However, compared to bond or cash ETFs, the ILC ETF is likely to be more volatile (which is seen as riskier) over the long term.
You may want to keep in mind that ILC is significantly weighted to companies that make money within Australia. With only 20 positions, ILC could be seen as a big bet on Australia’s iron ore sector and domestic banking sector – two things that Australia is good at but can be cyclical.
There is a lot of concentration on resources and financials within ILC, so investors could benefit from diversification by choosing an option, or options, that provide exposure to the international share market (VGS, IVV, IOO, etc.)
To view the full range of ETFs available on the ASX, click here. Or to join us inside Rask Core 🌏 and get all of our premium ASX research and model portfolios, click here.
This chart shows the yearly performance of the chosen ETF to key asset classes of Aussie shares (ASX: VAS) and US shares (ASX: IVV). You can use this chart to visualise how the ETF responds to different market environments. We recommend using a 5+ year time horizon for comparisons. The chart compares price return only.
ILC invests in Australian shares, which offer growth and income potential. You could buy all of these companies yourself using a share brokerage account, but that would be a very expensive and time-consuming process. ETFs are an effective way to invest in an entire sector through a single trade.
The iShares ILC ETF could be used by investors looking to gain focused exposure to Australia’s largest public companies. These Australian companies are likely to grow their profits over time and have a track record of paying regular tax-effective dividends for their shareholders.
The Best ETFs technical analysis chart pack shows the 12-month share price movements, Stochastic bands and traded volume (for both up and down days). This chart uses end-of-day data, so it’s for illustrative purposes only.
*The warnings on this page are applied by our ETF research team. Please know that these warnings are based on quantitative metrics and our internal methodology. These risks are not exhaustive and therefore they should not be relied upon. Always read the PDS of the function and speak to your financial adviser before acting on this information.
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