Investing in the share market is something many Australians do to build long-term wealth, but picking individual stocks can be time consuming, confusing and expensive. On the surface, Exchange Traded Funds (ETFs) can appear straightforward, offering simple access to diversified portfolios. But the actual cost and efficiency of an ETF can vary depending on the provider, the fees involved, and how closely the fund tracks its chosen index. Even small differences in these factors can compound over time and influence the outcome investors receive.

As part of our 2025 Exchange Traded Funds Provider of the Year Award, we analysed providers based on the ongoing management fees, the “hidden” cost of bid/ask spreads, and how accurately the fund tracks its target index (tracking error), as well as the features they offer, to determine which provider delivers the most value for Australians building their portfolio. 

Canstar Research Analyst, Fin Valentine: “Management fees are the cost most investors recognise, but they’re only one part of how an ETF delivers value. Our assessment also looks at tracking error, which shows how closely the fund has matched its benchmark over time, and the bid/ask spread, which affects the real cost of buying and selling. These are factors many investors aren’t aware of, but they can have a meaningful impact on how much of the benchmark return you actually keep.”

Because even small deviations can compound over time, choosing an efficient ETF provider matters for achieving a cost-effective, reliable way to track the market.

Important Note: Canstar’s ETF Award evaluates passive ETFs exclusively, removing Active Funds and Geared funds that aim to outperform the market from consideration. Rather than scoring based on potentially volatile investment returns, our methodology focuses on how accurately and cost effectively a fund replicates its index or benchmark.

2025 ETF Provider of the Year: Vanguard

Vanguard has been recognised as Canstar’s 2025 ETF Provider of the Year based on its performance across the key metrics in our methodology. In our assessment, Vanguard demonstrated strong results in areas such as:

• Consistently low tracking error across major indices considered
• Competitive fees and tight spreads, helping reduce overall investor costs
• Breadth of product offering, providing a wide mix of diversified and thematic ETFs

What we looked at

We assessed providers against three critical metrics to determine which funds offer the best genuine value for Australian investors. We averaged these metrics over 12 months to ensure consistency. The metrics that were assessed are:

• Management Fees (MER): The ongoing annual cost to hold the fund. 

• Tracking Error: This measures how closely the ETF follows its target index. A low tracking error means the fund is doing its job perfectly; a high error means you aren’t getting the return you expected.

• Bid/Ask Spread: A “hidden cost” paid when you trade. This is the difference between the price you can buy (Ask) at and the price you can sell (Bid) at. Tighter spreads mean cheaper entry and exit for investors.

Canstar Research Analyst, Fin Valentine: “By taking a 12 month average of bid/ask spreads, tracking error and management fees, we strip out short-term market fluctuations and lucky timing. This approach ensures our Provider of the Year recipient is recognised for delivering consistent value to investors” 

Many providers offer ETFs that follow the same benchmark/index, yet the actual returns investors receive may differ – not due to differences in market performance – but due to differences in management costs, tracking error and buy and sell spreads. This is why we focus on factors that directly affect how much of the benchmark’s performance actually reaches the investor.

Small differences can have long-term impacts. For example, a difference in management expense ratio of just 0.5% can result in earning $14,894 less (assuming 6% returns p.a.) on a balance of $50,000 invested over 20 years in the same fund.

Why Tracking Error Matters

Passive ETFs are designed to mirror an index, not beat it. That means the provider’s job isn’t to generate higher returns – it’s to replicate the index as closely and efficiently as possible. A low and consistent tracking error suggests efficient management, fewer leaks to cost, and a fund that reliably delivers the index outcome investors expect.

Historical returns can look better or worse depending on the period measured, market conditions or timing, none of which are controlled by the provider. That makes returns a poor indicator of provider quality.

That’s why our Provider of the Year assessment focuses on tracking efficiency and cost, the aspects of performance the provider can influence, rather than on market-driven returns.

Read the methodology for more detail.

Who we looked at

We assessed a range of leading ETF providers across five asset classes. The providers and asset classes we looked at include:

• Providers Assessed: Vanguard Investments, BlackRock (iShares), State Street (SPDR), BetaShares, VanEck.
• Asset Classes: Fixed Income, Equity Global Sectors, Equity Global, Equity Australian Sectors, Equity Australia

What is an ETF?

An Exchange Traded Fund (ETF) is an investment fund that trades on an exchange, just like single shares in a company. You buy and sell ETFs through an online share trading platform or broker. When you purchase an ETF, you’re effectively buying a small slice of every asset the fund holds. This gives you instant diversification, spreading your risk across potentially hundreds of companies in a single trade. Unlike investing directly in individual stocks, with an ETF, you don’t own the underlying investments, you own units in the ETF and the ETF provider owns the shares or assets.

Canstar Research Analyst, Fin Valentine on the “diversification myth” – “Holding an ETF doesn’t eliminate risk – specifically ‘market risk’ (systematic risk). Even perfectly diversified ETFs can fall in value if the entire market, sector, or theme they track declines. Diversification reduces risk, but it doesn’t remove it.”

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