Which ETFs Have the Highest Return on Investment?

ETFs are becoming more and more popular among Aussie investors, so which on our database have generated the highest returns on investment?

If you’re thinking of investing in an ETF or three, this article will explain each type of ETFs and show which ones on our database have delivered the highest returns to their investors over the past one year.

ETFs – or Exchange Traded Funds – 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 and tend to be more passive than managed funds.

The popularity of ETFs has soared over the last decade. According to research by Vanguard Australia, Australian ETFs reached $29.84 billion in funds in July 2017. A decade prior, this figure was only $926 million. Vanguard’s Quarterly ETF Report for September 2017 also found that $5.7 billion was poured into ETFs by Australian investors that year, up from $3 billion the previous year.

ETFs can be an option worth considering for investors looking for low-cost, lower-risk products that can provide slightly lower but steadier returns than some other products. But ETFs don’t have a one-size fits all approach – there are many different types, including:

  • Australian Broad Based ETFs
  • Australian Sector ETFs
  • Australian Strategy ETFs
  • International Broad Based ETFs
  • International Sector ETFs
  • Commodity ETFs
  • Currency ETFs

 

Note: Returns alone are not a true indication of an ETF’s quality – rather it is a sign of the category/index’s performance they are tracking. There are many ways to assess the quality of an ETF, including its management team and value. 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 index performance. It can be measured as the amount an ETF’s return, as indicated by its net asset value (NAV), varies from the actual index return. ETFs rarely meet an index/category’s performance, so it can be a good idea to look for an ETF with the smallest tracking error.

As well as one-year returns, the below tables will also show returns data for the past:

  • One month
  • Three years
  • Five years

Each table of products shown is sorted by one-year returns, meaning products that have delivered the highest returns over that time will feature more prominently. Small-cap stocks tend to outperform larger cap stocks over shorter periods, while large-cap stocks often deliver higher returns over the long-term.

To compare more ETFs over your preferred length of time, visit Canstar’s ETF comparison page here.

Highest one-year returns – Australian Broad Based ETFs

Australian Broad Based ETFs are the most common form of Domestic Equity ETFs, which accounted for 44% of all ETFs listed on the ASX at the time of the Vanguard report. Broad Based or ‘Index’ ETFs track a broad index such as the ASX200 or the ASX50. 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 Stockspot’s 2017 ETF Report, the average 1-year return for Australian Broad Based funds was 19%.

The table below displays the Australian Broad Based ETFs on Canstar’s database with the highest one-year returns (sorted highest-lowest). 

Highest one-year returns – Australian Sector ETFs

Sector ETFs invest in specific ‘sectors’ on the market, such as banks, resources, property and more. Therefore, Australian Sector ETFs buy groups of Australian stocks from these sectors. Because of how different they are, Sector ETFs can have wildly different levels of performance; online investment adviser Stockspot found that there was a 26% difference between the best and worst performing ETFs in 2017.

According to Stockspot in 2017:

  • Property ETFs returned 6-9% over one year
  • Resources and Mining ETFs returned an average of 26-40% over one year

Sector ETFs tend to be more concentrated on larger stocks than smaller, riskier investments.

The table below displays the Australian Sector ETFs on Canstar’s database with the highest one-year returns (sorted highest-lowest).

Highest one-year returns – Australian Strategy Based ETFs

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

Based on historical data from Stockspot, Strategy ETFs have generated similar returns for their investors than Broad Based or Sector ETFs, but tend to come with higher fees.

The table below displays the Australian Strategy Based ETFs on Canstar’s database with the highest one-year returns (sorted highest-lowest).

Highest one-year returns – International Broad Based ETFs

International Broad Based or ‘Broad Market’ ETFs work in a very similar way to Australian Broad Based ETFs, except that instead of Australian indicies they track global ones, such as the S&P500. According to the Reserve Bank of Australia, International ETFs account for 39% of all ETFs on the market, with the majority of that invested in global indicies and the US.

These ETFs have historically returned slightly greater returns than Australian ETFs, and according to Stockspot they had the highest average return of all ETF categories, with 12.8% over one year from March 2017 to 2018.

The table below displays the International Broad Based ETFs on Canstar’s database with the highest one-year returns (sorted highest-lowest).

Highest one-year returns – 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. These ETFs might invest in sectors like healthcare, technology, cybersecurity, sustainability, agriculture and more.

International Sector ETFs can offer affordable access to global markets, and according to Stockspot represented the biggest area of growth for new ETFs in 2017.

The table below displays the International Sector ETFs on Canstar’s database with the highest one-year returns (sorted highest-lowest).

Highest one-year returns – Commodities ETFs

Commodities ETFs invest in physical commodities like agricultural goods and precious metals (i.e. gold) or may own derivative investments associated with the commodities. 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.

According to the RBA there are only five listed Commodities ETFs at the time of writing. Not all of these funds may be listed by Canstar in the comparison tables.

The table below displays the Commodities ETFs on Canstar’s database with the highest one-year returns (sorted highest-lowest).

Highest one-year returns – Currency ETFs

Currency ETFs track the performance of the Australian Dollar (AUD) against other select currencies, so can 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, with the first fund listed in 2012, and they account for about 2% of the total ETF market in Australia.

The table below displays the Currency ETFs with the highest one-year returns (sorted highest-lowest).

Pros and Cons of ETFs

It’s a good idea to familiarise yourself with the potential advantages and disadvantages of ETFs before you invest in them.

Pros

A key advantage of an ETF can be its cost (although some are more cost-effective than others). Some ETFs can invest in upwards of fifty listed stocks but should cost you a standard brokerage fee and a management fee that is generally lower than that of a managed fund.

Many ETFs enable investors to diversify their money across broad markets or individual sectors. You can also access all of the usual benefits of stock trading, such as receiving dividends from your investments.

Cons

Although some ETFs may be less volatile than individual stocks due to the diversification they offer, ETFs still involve trading and as such can still lose money on your investment due to any number of factors in the market.

Since ETFs come with fees and taxes, it is highly unlikely that they’ll ever exactly match the index it tracks. Returns on ETFs historically have been lower than that of individual investments, but they can balance this out with diversification and ease of entry. If you invest in an international ETF, fluctuations in the Australian dollar can impact your returns and you can even be hit with foreign taxes.

It is worth noting that ETFs are considered by ASIC to be complex financial products. Some are more complex and risky than others. For more information on ETFs and risks associated with them, see ASIC’s Moneysmart website.

Want to trade ETFs? The table below displays a snapshot of online share trading platforms on Canstar’s database for ‘casual investors’, and with links to providers’ websites. Please note that these results are based on an average of 2 trades per month, are ordered by star rating and then by providers’ name alphabetically. Before investing, check upfront with your provider and read the PDS to confirm whether it meets your needs. 

You can also compare other investment products with Canstar, such as share trading platforms, managed funds and superannuation.

Compare ETFs

Compare Online Share Trading Accounts

Compare International Share Trading Platforms

Compare Managed Funds

Compare Superannuation

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