So what do they 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 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.
If you want to go beyond the basics with the VSO ETF you can learn more about it by reading our free review.
Obviously, an easy way to analyse ETFs like ILC and VSO 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 December 2021, the VSO ETF has an MER of 0.30% while the ILC ETF had a yearly fee of 0.24%. So, ILC 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.
Track record
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 December 2021, the VSO ETF had an average annual return of 20.08%. During the same time, the ILC ETF returned 14.08%.
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 VSO 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. ILC’s provider 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.
Next steps
To keep reading about these two ETFs, be sure to visit our free VSO ETF report or ILC ETF review.
In summary, the VSO ETF rates better for our internal scoring methodology but not by much compared to ILC.
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 2022, keep reading…
