The Best Exchange Trading Funds of Australia

ETF Australia

Exchange traded funds (ETFs) are popular among many investors, and many want to know which are the best to invest that can give them higher returns. If you are new to this kind of investment then ETFs are a form of investing that pools your money into a widely diversified portfolio of stocks with a single investment. They are overseen by a professional fund manager.

ETFs can be an option worth considering for investors who are interested in shares or similar assets, but are looking for relatively low-cost, lower-risk products that could provide slightly lower and steadier returns than some other products.

Best Exchange Trading Funds to invest in Australia

The popularity of ETFs in Australia has risen over the last decade. According to research by Vanguard Australia, Australian ETFs reached more than $40 billion in funds under management in 2018, representing an increase of more than $10 billion since July 2017. Vanguard’s Quarterly ETF Report for December 2018 also found that $6.4 billion was poured into ETFs by Australian investors that year, which was the second-biggest annual cash flow number in the history of Australian ETFs.

There are many different types of ETFs in Australia like the Australian Broad Based ETFs, Australian Sector ETFs, Australian Strategy ETFs, International Broad Based ETFs, International Sector ETFs, Commodity ETFs and Currency ETFs

It is to remember that returns alone are not the only indication of an ETF’s quality but they are typically a sign of the performance of the asset category or index they are tracking. There are many other ways to assess the quality of an ETF, including its management team and value. According to the Australian Securities and Investments Commission (ASIC) on its MoneySmart website, one of the key ways to determine an ETF’s value is to look at its tracking error.

The tracking error of an ETF is the difference between the ETF’s performance and the performance of the index it is tracking. It can be measured as the amount by which an ETF’s return, as indicated by its net asset value (NAV), varies from the actual index return. There are Passive and Active ETFs. Passive ETFs track an asset or market index and generally do not seek to outperform the market. Active ETFs mean the fund manager is actively trying to outperform the market or index. Because Passive ETFs rarely meet an index or category’s performance, it could be a good idea to look for an ETF with the smallest tracking error.

Australian Broad Based ETFs

Australian Broad Based ETFs are the most common form of Domestic Equity ETFs, which according to the Vanguard report accounted for 45% of its ETFs in 2018 based on total funds under management. Broad Based or ‘Index’ ETFs track a broad index such as the S&P/ASX 200 or the S&P/ASX 50. They invest in multiple sectors across the Australian market, and as a result tend to be highly diversified, investing in small, mid and large-cap stocks.

According to online investment adviser Stockspot’s 2018 ETF Report, which measured the average performance of ETFs over the year to March 2018, the average one-year return for Australian Broad Based funds was 19%. Before committing to a particular ETF, check upfront with your provider or financial adviser and read the PDS to confirm whether it suits your needs.

Sector ETFs

Sector ETFs  invest in specific ‘sectors’ of the market, such as banks, resources or property. Therefore, Australian Sector ETFs buy groups of Australian stocks from these sectors. Because there are a number of different sectors within the Australian share market, Sector ETFs can have noticeably different levels of performance.  Stockspot found in its 2018 report that there was a 26% difference between the best and worst performing ETFs.

Australian Strategy ETFs

The investments in Australian Strategy ETFs are selected according to certain investment strategies, like high-dividend yield or maximised capital growth. They tend to only include a limited number of different Australian stocks, rather than a broad index.

International Broad Based or ‘Broad Market’ ETFs

International Broad Based or ‘Broad Market’ ETFs work in a very similar way to Australian Broad Based ETFs, except that instead of Australian indices they track global ones, such as the American stock market index the S&P 500. According to Stockspot, these ETFs had the highest average return of all ETF categories, with average growth of 12.8% over the year to March 2018.

International Sector ETFs

In a similar way to Australian Sector ETFs, International Sector ETFs aim to capture the performance of stocks in specific sector segments, but in overseas markets. International Sector ETFs can offer affordable access to global markets, and according to Stockspot represented the fastest-growing ETF type in terms of funds under management over the year to March 2018.

Commodities ETFs

Commodities ETFs invest in physical commodities like agricultural goods and precious metals such as gold. When an investor buys a Commodities ETF, they don’t own a physical asset. Rather, they own a set of contracts backed by the commodity.

Australian Currency ETFs

Australian Currency ETFs track the performance of the Australian Dollar (AUD) against other select currencies. Currency ETFs may be worth considering for those investors who want exposure to currency movements without actually buying physical tender. These are a relatively new type of ETF in Australia, with the first fund listed in 2012, and according to the Stockspot report, they account for about 2% of the total ETF market in Australia.

Popular types of ETFs to invest on

Here are some of the most common types of ETFs to invest on are:

  • Long ETFs that take a “long position” on their underlying indexes. They typically own shares of companies in a specific index. If the index rises, so do share prices in long ETFs, by about the same amount, minus any expenses and trading costs.
  • Inverse ETFs which is the opposite of long ETFs. They take “short positions” on the underlying index. Share prices move in the opposite direction to ETF shares. If the index loses money, you win.
  • Gold ETFs invest in a representative sample of gold stocks, or they hold claims on actual gold bullion, held in trust by a custodian. Shares in gold ETFs typically move in rough tandem with gold prices. You can also buy ETFs that focus on precious metals more generally.
  • Industry ETFs own a portfolio of stocks representing an industry, such as energy and oil, technology, mining, transportation, health care, and so on.
  • Country ETFs investments buy shares in companies that represent a cross-section of industry in a given country. For instance, they may own shares of the largest 50 publicly traded stocks in a specific country as measured by market capitalization. You can also buy regional ETFs as well, which focus on entire continents.
  • Leveraged ETFs funds use borrowed money to “gear up” their portfolios, magnifying returns. They also magnify risks as well. For instance, a leveraged S&P 500 ETF will seek to roughly double the returns of the index, minus interest and expenses. But they will also double the size of losses as well. You can also buy leveraged inverse ETFs – these are very risky.
  • Currency ETFs are the securities that seek to capture the returns of foreign currencies.
  • Bond ETFs are just like stock ETFs, except they own bonds instead of stocks.

ETFs can be useful to investors who want very focused exposure to a specific industry, region, currency, or asset class at a reasonable cost, without having to worry about researching specific securities. Because their costs are so low, they are also useful as long-term core holdings for buy and hold investors.

ETFs are best suited for investors who intend to hold them for a long time. This gives the lower long-term expense ratios of these securities compared to competing actively managed mutual funds and even open-end index funds time to build up. They are also very useful as trading vehicles, especially if you don’t want to drill-down too deeply in any one company, or retain too much individual company risk.

Finally when looking for best ETF always find a trusted financial advisor, or do your own research on the fund or funds in which you’re interested to invest.

Let’s get started...

Broker Rating Markets Available Fees Open an Account
Kawase Logo
1 Star2 Stars3 Stars4 Stars5 Stars
Rating 3.44 /5
(16 votes cast)
Shares, Indices, Forex and Oil Spread From 0.1 and 0.2% Commission Visit Website
MaxFx Logo
1 Star2 Stars3 Stars4 Stars5 Stars
Rating 4.66 /5
(90 votes cast)
Indices, Forex, Metals, Shares From 0.1 Raw Interbank Spread Visit Website
London Capital Group (LCG) Logo
1 Star2 Stars3 Stars4 Stars5 Stars
Rating 0.43 /5
(127 votes cast)
CFDs - Foex, Indices, Stocks, Commodities, Bonds, Interest Rates Variable spreads from 1.2 and small 0.1 commission on Shares Visit Website

Login to Comment

Share your experiences with our community. You must be logged into post a comment. Sign up as new CFDMaster member or Log in using your Facebook account and get instant access today!

Risk warning: Your capital may be at risk. CFD trading is suitable for experienced traders and not beginners.