In this short article, we’ll take a look at two top ETFs: Vanguard MSCI Australian Small Companies Index ETF (ASX: VSO) and iShares Core S&P/ASX 200 ETF (ASX: IOZ).
What do the VSO and IOZ ETFs do?
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.
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.
If you like the look of the VSO ETF, check out our free VSO ETF report.
One of the easy ways we compare ETFs such as IOZ and VSO at Best ETFs and Rask Austalia is by analysing the fees and costs of an ETF. Internally, we score ETFs based on management fees, plus indirect costs and we take into account the buy-sell spread. We like to look at the ‘all-in’ costs of buying and owning an ETF.
We’ll keep it basic and just study the fees. Based on our data for December 2020, the VSO ETF has a management expense ratio (MER) of 0.30% while the IOZ ETF’s yearly fee was 0.09%. Therefore, IOZ wins on this one. That said, a more useful metric to know is the fee quartiles that these ETFs find themselves in (note: quartile 1 is best). For example, any ETF which has a fee below 0.3% would be considered in our first (best) quartile.
Show me the money
It’s time to study the track record. 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 compelling return one year just to generate subpar 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 VSO ETF had an average annual return of 9.50%. During the same time, the IOZ ETF returned 7.77%.
Finally, at Best ETFs Australia, we apply a rating to the ETF issuer or provider. That is, the company that starts and is responsible for operating the ETF on the ASX. There are too many considerations that go into our scoring to detail here. The issuer of VSO 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.
Best ETFs Takeaway
Be sure to visit our free ASX VSO review or ASX IOZ ETF review.
For us, the VSO ETF ranks greater for our internal scoring methodology and by quite some distance.
We hope this article helped you analyse ETFs. Don’t forget, there’s a lot more to investing well than what we just outlined (risks, diversification, other potentially better ETFs, etc.). Our analyst team at Rask Australia spends months looking at new ASX investments (it’s our day job!). To make your life easier, you can get the name of our team’s top ETF pick for 2021 in a free report. Keep reading to find out how to get our analyst’s report emailed to you right now…
