Stockspot’s annual review of exchange traded funds looked at over 150 funds with $27 billion invested, revealing which ones stand out from the crowd.
Here are the 14 highest-rated ETFs based on factors such as fees, performance, size and activity.
Stockspot’s third annual review of exchange traded funds (ETFs) has examined 150 of them and come up with the best 14 in the categories of broad Australian shares, Australian sectors, broad international shares, and fixed interest and cash.
While it is easy to focus on performance, you need to look at a range of other factors too.
For example, BetaShares Geared Australian Equity (Hedge Fund) (ASX: GEAR) returned 47% followed by SPDR S&P/ASX 200 Resources (OZR) with 40% and BetaShares S&P/ASX 200 Resources Sector (QRE) with 40%.
They were among the top five over the year to April 2017. But a year earlier they were actually among the worst five. This volatility highlights how unreliable performance is as a factor.
And choosing an ETF that has a specialised strategy, such as GEAR’s borrowings, which magnify returns (or losses), rather than a plain-vanilla index ETF, can be fraught with danger for novice investors.
It is better to stick with ETFs that track a broad index, is backed by a robust provider and offers liquidity so you can sell out easily if need be.
The Reserve Bank of Australia’s economist, Michelle Cunningham, has pointed to a rise in the number of ASX-listed ETFs with more complex structures, such as leveraged and inverse funds, as well as funds that use more obscure benchmarks.
She says some investors may not fully appreciate the risks of investing in these instruments, warning that liquidity in the ETF market could decrease in times of stress, particularly if market makers withdraw from it.
Also synthetic ETFs (which make up a small number of the total available) rely on a counterparty paying the return without holding the benchmark, so there is some risk that the counterparty could default or not be able to pay out.
Here are the top 14 ETFs.
- Australian shares (broad market)
Stockspot has given four Australian sharemarket ETFs five spots, its top rating: iShares Core S&P/ASX 200 ETF (IOZ), iShares S&P/ASX 20 (ILC), SPDR S&P/ASX 200 (STW) and Vanguard Australian Shares Index (VAS). Most ETFs in its review received three or four spots. “VAS is our current Stockspot portfolio inclusion from this asset group,” it says.
- Australian shares (sectors)
Stockspot awarded five spots to only one ETF, Vanguard Australian Property Securities Index (VAP), which enjoyed the fastest growth in funds under management this year.
- Global shares (broad market)
Stockspot awards five spots to five ETFs: iShares S&P 500 (IVV), Vanguard All-World ex-US Shares Index (VEU), Vanguard MSCI Index International Shares (Hedged) (VGAD), Vanguard MSCI Index International Shares (VGS) and Vanguard US Total Market Shares Index (VTS).
- Fixed interest and cash
Stockspot has given a five-star rating to BetaShares Australian High Interest Cash (AAA), iShares Core Composite Bond (IAF), Vanguard Australian Government Bond Index (VGB) and Vanguard Australian Fixed Interest Index (VAF).
“IAF is our current Stockspot portfolio inclusion from this asset group. We feel it provides a good mix of government, semi-government and corporate bonds with a relatively short average duration. This reduces the sensitivity of IAF to short-term changes in rate expectations. Stockspot themes also include the option of VIF and AAA.”