Canstar’s 2021 Award-winning ETF provider revealed

Global investment behemoth Vanguard is the winner of Canstar’s Exchange Traded Fund (ETF) Award for the second year running. The result comes at a time when Australians are continuing to plough money into ETFs.

As of October 2021, the value of all exchange traded products (ETPs), including exchange traded funds (ETFs) on the Australian Stock Exchange (ASX) was $124.64 billion, an increase of almost 70% on the previous 12-month period. This number looks set to continue growing, with almost one-third of Australians (31%) indicating they have become more interested in investing since the COVID-19 pandemic began, according to a survey by online trading provider Global Prime.

If you’re looking to invest in an ETF, understanding how Canstar assesses providers offering this product and why Vanguard came out on top may help you decide how to invest your money.

How was the ETF Award winner decided?

To determine the winner in 2021, Canstar assessed eligible providers across five investment categories, which made up a combined 85% of each provider’s overall score:

• Equity Australia (30%): funds that invest across small, mid and large-cap companies listed on the ASX
• Equity Global (30%): as above but investing in international markets
• Fixed Income Australia (10%): cash, bonds etc.
• Equity Global Strategy (8%): funds investing globally with a strategic investing outcome in mind, such as high dividend funds or responsible investing funds
• Equity Australia Strategy (7%): as above, but investing in ASX-listed companies.

Within the individual investment categories, the highest-scoring ETF from each provider was used to assess that provider’s performance for each category.

Canstar Research assessed the providers’ ETFs based on three criteria for each investment category.

1. Tracking error (50%), which considers the difference between an ETF’s gross performance compared to the benchmark it is tracking; for example, a benchmark for an ETF could be to track the performance of the S&P 500 or ASX 200. Canstar Research recorded the tracking error over the course of 12 monthly observations.
2. Fees and management costs (30%), which is based on the weighted average of management fees over a 12-month period.
3. 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.

The remaining 15% of the overall score was based on the tools and services offered by the provider to help inform and educate investors, including newsletters, market commentary and the extent to which the provider discloses its funds’ holdings and allocations.

To be considered for the Award, providers needed to be open to new investors, not be a hedge fund or a managed fund, have an ETF present in the five investment categories (as above) and have had eligible ETFs available for a year.

For more information on how Canstar’s Exchange Traded Funds – Provider of the Year Award was assessed, read the methodology.

Exchange Traded Funds – Provider of the Year Award 2021: Vanguard

Vanguard is the winner of Canstar’s Exchange Traded Funds – Provider of the Year Award for 2021, having won the inaugural award in 2020. It offers a total of 28 ETFs covering a range of markets, sectors, assets classes and strategies.

“Once again Vanguard offered competitive ETFs in all of the investment categories assessed, but its strength particularly came through in Global Equities,” Canstar’s Ratings Manager Josh Sale said.

“Its range of ETFs provides broad exposure to the global share market, with extremely competitive management fees from as low as 0.03% per annum.”

Mr Sale added that Vanguard sharpened some of its pricing in 2021, notably cutting the management fees on its Australian Fixed Interest Index ETF from 0.20% p.a. to 0.15% p.a.

The tools and services offered to investors also stood out, according to Mr Sale.

“Vanguard’s website has a comprehensive suite of resources for investors, allowing them to do side-by-side comparisons of their ETF options, better understand the underlying assets, and see historical performance returns of both the fund and its benchmark dating back to inception of the ETF,” he said.

Vanguard continues to be the only provider on Canstar’s database that allows investors to buy and sell ETFs directly through its website.

Vanguard has been offering investment services in Australia since 1996 and had $142 billion under management across 82 funds, as at 31 August, 2021.