Canstar has revealed the winner of its first-ever Exchange Traded Funds – Provider of the Year Award. Find out who won and what Canstar’s expert researchers factored in when assessing the contenders.
Australians are investing record amounts of money in exchange traded funds (ETFs) – a product category that allows investors to buy into a pool of assets that’s listed on a stock exchange, rather than picking individual shares.
In October 2020, the value of all exchange traded products on the country’s largest share market, the ASX, grew to an all-time high of $73.55 billion, with the 12-month average number of individual transactions climbing to almost 370,000 during the month. This represents an increase in transactions just shy of 187% compared to October 2019, ASX data shows.
ETFs have been growing in popularity for many years now, but the current combination of record-high household savings and record-low interest rates may partly explain the significant increase in the number of people now investing in ETFs. Of course, the lure of potentially higher investment earnings brings a greater degree of risk than keeping your money in a bank account, but for now it seems many investors are prepared to dive in.
If you’re considering investing your money in an ETF, one of the decisions you will face is which ETF provider to invest with. Canstar Research has assessed a range of providers across the market and has revealed which one it found to offer outstanding value to Aussie investors.
Exchange Traded Funds – Provider of the Year Award 2020: Vanguard
Vanguard is the winner of Canstar’s first-ever Exchange Traded Funds – Provider of the Year Award. The US-based investment firm has been operating in Australia since 1996 and has $164 billion in assets under management as of 30 September, 2020. It currently offers 28 different ETFs to Australian investors, across a range of sectors and asset classes.
“Vanguard had competitive ETFs available in all investment categories we assessed, but its strength particularly came through in Global Equities,” Canstar’s Ratings Manager, Josh Sale, said.
“Vanguard offers a range of ETFs providing broad exposure to the US share market, with extremely competitive management fees from as low as 0.03% per annum,” he said.
The features Vanguard offers to investors also played a part in its win, including some services unique to the provider.
“Through its website, investors have a comprehensive suite of resources at their disposal,” Mr Sale said.
“For example, Vanguard allows for side-by-side comparisons of ETF options, gives a thorough explanation of each ETF’s underlying assets, and enables investors to analyse historical performance returns of both the fund and benchmark dating back to when the ETF was established”.
In addition, Vanguard was the only provider assessed to offer investors the ability to buy and sell ETFs directly through its website.
“This could be an attractive option for a new investor who does not have an existing relationship with a broker,” Mr Sale added.
How was the ETF Award winner decided?
To determine the winner, Canstar assessed eligible providers across three investment categories, which made up a combined 85% of each provider’s overall score:
- Equities Australia (focussed on Australian shares) – 30%
- Equities Global (focussed on international shares) – 30%
- Fixed Income (cash, bonds etc.) – 25%
Within the individual investment categories, Mr Sale explained that the highest-scoring ETF from each provider was used to assess that provider’s performance for each category.
“This means the methodology was not only recognising a single ETF’s ability to closely track the performance of its benchmark, but rather the provider’s ability to deliver on this promise and provide value across a range of popular investment categories”.
Canstar Research assessed the providers’ ETFs based on three criteria for each investment category.
- Tracking error (50%), which considers the difference between an ETF’s gross performance compared to the benchmark it is tracking, e.g. a benchmark for an ETF could be to track the performance of the S&P/ASX 200. Canstar Research recorded the tracking error over the course of 12 monthly observations over the year to 30 September, 2020.
- Fees and management costs (30%), which is based on the weighted average of management fees over a 12-month period.
- Buy/sell spread (20%), which reflects a weighted average of the costs to buy or sell underlying assets when a person is investing into or withdrawing from an ETF. This spread is a percentage of the ETF price that is added onto or removed from the price that a consumer will buy or sell at, and is based on data gathered over a 12-month period.
Vanguard’s best-performing ETF in each investment category
|
Equity Australia |
Equity Global |
Fixed Income Australia |
| Tracking error |
0.017% |
0.004% |
0.022% |
| Buy/Sell Spread |
0.041% |
0.058% |
0.062% |
| Management Costs |
0.100% |
0.030% |
0.200% |
Source: www.canstar.com.au December 2020. Investment categorisation as per ASX. Figures based on Vanguard’s best-performing ETF in Canstar’s 2020 Provider of the Year – Exchange Traded Funds Award. Tracking Error is based on the 12-month historical tracking error of each ETF for the period from 1/10/2019 to 30/09/2020. See the Award methodology for further detail on how these are calculated.
“In addition to the provider’s ETFs, the remaining 15% of a provider’s overall score was based on the depth of transparency, market commentary and educational tools that it made available to investors to assist them in making better-informed investment decisions,” Mr Sale explained.
For more information on how providers were assessed, take a look at Canstar’s Exchange Traded Funds – Provider of the Year Award methodology.
View all ETFs considered
What difference can an Award-winning ETF provider make?
The table below shows how Award-winner Vanguard compared to the average of all the providers Canstar assessed across the various categories and criteria in the methodology.
|
Average of providers assessed – Equities Australia |
Vanguard – Equities Australia |
Average of providers assessed – Equities Global |
Vanguard – Equities Global |
Average of providers assessed – Fixed income |
Vanguard – Fixed Income |
| Tracking error |
0.022% |
0.017% |
0.191% |
0.004% |
0.040% |
0.022% |
| Buy/sell spread |
0.090% |
0.041% |
0.269% |
0.058% |
0.172% |
0.062% |
| Management costs |
0.210% |
0.100% |
0.290% |
0.030% |
0.228% |
0.200% |
Source: www.canstar.com.au, December 2020. Investment categorisation as per ASX, all figures based on 47 eligible ETFs from eligible providers considered in Canstar’s 2020 Provider of the Year – Exchange Traded Funds Award. Tracking Error is based on the 12-month historical performance of each ETF for the period from 1/10/2019 to 30/09/2020. See the Award methodology for further detail on how these were calculated.
Mr Sale said that an investor’s strategy and preferences may ultimately dictate which provider and fund is right for them.
“Most investors will be using a broker or online share trading platform to trade ETFs, and in many instances it might be advantageous to hold ETFs in your portfolio from a number of providers,” he said.
“If you are looking for exposure to a specific benchmark, it could be the case that only one or two providers will have a suitable ETF for you.
“That said, it remains important to understand the fee structure of the ETF you are looking at and also how well the provider delivers on its promise to track its benchmark effectively”.
Main image source: Wright Studio (Shutterstock)
This article was reviewed by our Sub-editor Tom Letts before it was published as part of our fact-checking process.
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