We recently crunched some numbers in our database and found that Vanguard MSCI Australian Large Companies Index ETF (ASX: VLC) and Vaneck Australian Bank ETF (ASX: MVB) ranked higher than most ETFs in the Australian shares sector.
So what do they do?
The Vanguard VLC ETF provides exposure to the MSCI Australian Shares Large Cap Index. This index is a ‘free float-adjusted market capitalization index’ which provides investors with exposure to the largest companies on the ASX.
The VanEck MVB ETF provides focused exposure to Australia’s largest industry, the banking sector. This is a low-cost way to invest in the Australian banking industry through a single fund.
If you want to go beyond the basics with the VLC ETF you can learn more about it by reading our free review.
Obviously, an easy way to analyse ETFs like MVB and VLC is by using quantitative methods and judging the fees and past performance (note: past performance is no guarantee of future performance).
At Rask Australia and Best ETFs, our team scores ETFs and funds based on the management fees and we take into account the buy-sell spread and other costs. We’ll then compare these ‘all in’ fees and costs across sectors, strategy types and providers to get a sense of fees across the entire 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 VLC ETF has an MER of 0.20% while the MVB ETF had a yearly fee of 0.28%. As a result, VLC 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 classify 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.
How we study past performance
Time to look at past returns. 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 attractive return one year just to generate unsatisfactory 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 VLC ETF had an average annual return of 12.50%. During the same time, the MVB ETF returned 6.49%.
Now we need to scrutinise the issuer or provider of the ETF. There are too many factors that go into our internal scoring of fund providers to detail here — here’s the quick version: As you guessed, the issuer of the VLC 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. MVB’s provider is Vaneck. VanEck ranks highly for our scores of ETF providers and issuers in Australia. Our team considers VanEck to be one of Australia’s leading providers of specialised ETFs and funds for retail investors and advisers.
Next steps
If you’d like to learn more about these two ETFs, be sure to visit our free VLC ETF report or MVB ETF review.
In summary, the MVB ETF ranks higher against our internal scoring methodology but not by much compared to VLC.
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…
