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 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 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 IOZ 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 2022, the VLC ETF has an MER of 0.20% while the IOZ ETF had a yearly fee of 0.09%. So, IOZ wins on this metric. Keep in mind, a more informative 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 divide 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.
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 July 2022, the VLC ETF had an average annual return of 7.78%. During the same time, the IOZ ETF returned 6.22%.
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. IOZ’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
Be sure to visit our free ASX VLC review or ASX IOZ ETF review.
For us, the IOZ ETF rates greater against our internal scoring methodology, but only just.
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 2022 in a free report. Keep reading to find out how to get our analyst’s report emailed to you right now…
