Traditionally, having a diverse portfolio and having simple maintenance requirements was an either/or choice.

That is, unless you could buy into managed funds, but they can’t be easily bought and sold because they are not traded on stock exchanges. Furthermore, many of these are open to high-net worth or institutional investors only.

But Exchange Traded Funds (ETFs) claim to offer range as well as simple management of stocks. They offer retail investors the ability to buy multiple stocks at once while being able to trade as simply as just owning one.

 

What are ETFs?

ETFs work similarly to managed funds which invest in various financial assets including shares, bonds, infrastructure and in some cases even other ETFs. Among shares, ETFs can invest in shares of particular countries’ exchanges (such as the NASDAQ), a sector (such as defence) or to track an index (like the ASX 200).

They are managed by portfolio managers from financial institutions which buy and sell stocks on a regular basis. Australia’s biggest ETF providers include BetaShares, VanEck and iShares.

Unlike traditional unlisted funds they can be bought and sold through an exchange.

 

The ETF market

According to BetaShares, the ETF investor population in Australia in 2019 reached 455,000, which is 18 per cent higher than last year. BetaShares expects this to grow to 521,000 in 2020.

Of the investor population, 43 per cent are millennials, although the average age is 42. While the industry is still skewed 76/24 per cent towards males, this is an improvement from five years ago when it was 89/11 per cent.

Currently 30 per cent of ETF investors hold it through their self-managed super fund, whereas back in 2008 this figure was higher at 51 per cent. More investors are now buying and selling them directly.

There are 150 ETFs on the ASX with funds under management.

 

Performance in 2019

ETFs have performed well in 2019. As of December 13, the average ETF on the ASX had gained 22 per cent in 2019 and all but a handful had seen year-to-date growth.

The best performing one was BetaShares Geared US Equity Fund (ASX:GGUS), up 62 per cent.

Following this was Betashares Global Gold Miners (ASX:MNRS), up 40 per cent, which is easy to attribute to the rise of gold prices in 2019 – cracking A$2,000 for the first time.

Here are all the ASX-listed ETFs and their performance in 2019 up to December 13:

Swipe or scroll to reveal the full table. Click headings to sort

Name ASX Code Fund Assets (A$m) YTD Return (%) # of Holdings
Vanguard Australian Shares Ind VAS 4581.96 24 301
SPDR S&P/ASX 200 Fund STW 3822.90 24 203
iShares Core S&P 500 ETF/Austr IVV 3387.88 32 1
Vanguard MSCI Index Internatio VGS 2134.83 29 1589
iShares CORE S&P/ASX 200 ETF IOZ 1845.13 24 201
iShares Global 100 ETF/AU IOO 1797.27 30 --
Vanguard Australian Property S VAP 1688.03 21 29
Magellan Global Equities Fund MGE 1535.77 29 28
Vanguard Australian Shares Hig VHY 1372.85 21 63
VanEck Vectors Aus Equal Weigh MVW 1086.95 24 85
Vaneck Vectors MSCI World ex A QUAL 814.29 36 300
Vanguard MSCI Index Internatio VGAD 737.56 24 1590
BetaShares Australia 200 ETF A200 702.42 24 199
iShares MSCI Emerging Markets IEM 685.89 14 --
iShares Global Healthcare ETF/ IXJ 671.49 25 --
iShares Europe ETF/AU IEU 633.44 23 --
BetaShares NASDAQ 100 ETF NDQ 632.88 37 103
SPDR S&P/ASX 200 Listed Proper SLF 664.75 22 20
iShares Asia 50 ETF/AU IAA 549.18 15 1
SPDR S&P/ASX 50 Fund SFY 611.78 25 52
Magellan Infrastructure Fund - MICH 547.08 24 --
BetaShares Global Sustainabili ETHI 457.81 35 100
BetaShares Australian Sustaina FAIR 419.78 27 81
iShares MSCI EAFE ETF/AU IVE 381.58 21 2
Vanguard MSCI Australian Small VSO 362.97 20 165
Vanguard FTSE Emerging Markets VGE 347.14 17 4210
Platinum International Fund ET PIXX 369.28 17 --
iShares S&P/ASX 20 ETF ILC 319.03 21 20
iShares MSCI Japan ETF/AU IJP 318.87 23 --
BetaShares Australian Top 20 E YMAX 312.45 15 20
iShares S&P/ASX Dividend Oppor IHD 295.15 25 50
Russell Invest High Div Aust S RDV 289.26 20 50
BetaShares FTSE RAFI Australia QOZ 288.41 20 191
Vanguard Diversified High Grow VDHG 268.47 23 7
SPDR Dow Jones Global Real Est DJRE 357.39 22 234
Vanguard FTSE Europe Shares ET VEQ 259.01 23 1342
iShares S&P 500 AUD Hedged ETF IHVV 257.88 26 2
iShares Edge MSCI World Multif WDMF 255.27 23 334
VanEck Vectors Australian Prop MVA 254.94 23 12
Vanguard Diversified Balanced VDBA 211.95 16 7
Vanguard Diversified Growth In VDGR 203.64 19 7
VanEck Vectors FTSE Global Inf IFRA 198.06 21 142
iShares Core S&P Small-Cap ETF IJR 196.23 24 --
iShares Global Consumer Staple IXI 191.03 25 --
VanEck Vectors Gold Miners ETF GDX 273.66 37 1
UBS IQ MSCI Australia Ethical UBA 186.03 23 69
Vanguard FTSE Asia ex-Japan Sh VAE 180.26 14 1217
SPDR S&P Global Dividend Fund WDIV 291.14 19 119
SPDR S&P World ex Australia Fu WXOZ 203.90 28 1573
BetaShares Global Cybersecurit HACK 172.76 31 43
BetaShares Australian Dividend HVST 162.95 15 5
Platinum Asia Fund ETF PAXX 151.50 15 --
SPDR MSCI Australia Select Hig SYI 172.51 20 42
VanEck Vectors Morningstar Wid MOAT 229.40 36 1
BetaShares Australian Ex-20 Po EX20 154.76 27 175
ETFS S&P/ASX 300 High Yield Pl ZY 154.64 16 40
iShares Core S&P Mid-Cap ETF/A IJH 153.54 28 --
BetaShares Australian Equities BBOZ 148.57 -41 --
BetaShares US Equities Strong BBUS 142.91 -44 --
iShares Edge MSCI World Minimu WVOL 133.43 25 462
ETFS ROBO Global Robotics and ROBO 128.66 30 90
Vaneck Vectors S&P/ASX Midcap MVE 123.64 21 50
iShares Core MSCI World All Ca IWLD 121.12 28 6
Magellan Global Equities Fund MHG 119.57 24 28
iShares Core MSCI World All Ca IHWL 113.07 23 6
ETFS Morningstar Global Techno TECH 111.18 38 37
Vanguard MSCI Australian Large VLC 109.10 24 29
SelfWealth SMSF Leaders ETF SELF -- -- 51
iShares S&P/ASX Small Ordinari ISO 104.89 18 199
BetaShares S&P 500 Yield Maxim UMAX 102.58 24 1
iShares China Large-Cap ETF/Au IZZ 102.24 9 --
Montgomery Global Equities Fun MOGL 98.47 23 --
Vanguard Diversified Conservat VDCO 94.45 13 8
Betashares FTSE 100 ETF F100 89.30 -- --
ETFS S&P 500 High Yield Low Vo ZYUS 86.03 21 50
SPDR S&P World ex Australia He WXHG 95.31 23 1
BetaShares Asia Technology Tig ASIA 82.45 31 50
BetaShares Global Energy Compa FUEL 74.05 7 48
Vanguard Global Infrastructure VBLD 73.23 25 148
SPDR S&P/ASX 200 Resources Fun OZR 97.26 24 40
Switzer Dividend Growth Fund SWTZ 75.05 19 --
iShares MSCI South Korea ETF/A IKO 69.61 2 --
BETASHARES AUSTRALIAN RESOURCE QRE 68.94 23 33
BetaShares Managed Risk Global WRLD 67.86 21 2
VanEck Vectors Small Companies MVS 67.18 18 83
VanEck Vectors Australian Reso MVR 65.37 29 25
SPDR S&P/ASX 200 Financials Ex OZF 93.04 14 29
WCM Quality Global Growth Fund WCMQ 62.17 33 --
VanEck Vectors MSCI Australian GRNV 57.45 25 67
Vanguard Ethically Conscious I VESG 56.74 30 1623
ETFS EURO STOXX 50 ETF ESTX 56.14 27 50
BetaShares Australian Equities BEAR 56.05 -19 1
BetaShares Legg Mason Real Inc RINC 55.79 23 --
Vaneck Vectors China New Econo CNEW 51.01 38 120
iShares Global 100 AUD Hedged IHOO 50.79 24 109
BetaShares FTSE RAFI U.S. 1000 QUS 50.68 28 657
iShares Edge MSCI Australia Mi MVOL 50.36 23 123
BetaShares Managed Risk Austra ST 48.62 16 200
UBS IQ MSCI World ex Australia UBW 43.53 29 1555
VanEck Vectors Australian Bank MVB 43.14 11 7
BetaShares Global Banks ETF - BNKS 38.31 15 59
BetaShares Japan ETF - Currenc HJPN 37.96 17 131
BetaShares Geared US Equity Fu GGUS 35.27 62 1
BetaShares Australian Small Co SMLL 34.64 19 91
AMP Capital Global Infrastruct GLIN 34.17 36 --
BetaShares S&P/ASX Financial S QFN 32.56 13 27
BetaShares Global Healthcare E DRUG 32.33 18 60
Vaneck Vectors Msci Multifacto EMKT 31.64 15 240
BetaShares Europe ETF - Curren HEUR 31.08 23 150
BetaShares Global Quality Lead QLTY 29.46 35 149
Vanguard MSCI International Sm VISM 27.97 29 4117
VanEck Vectors China CSI 300 E CETF 39.63 31 1
BetaShares Global Robotics And RBTZ 26.90 34 35
BetaShares Legg Mason Equity I EINC 26.34 22 --
AMP Capital Global Property Se RENT 24.72 -- --
VanEck Vectors MSCI Internatio ESGI 24.27 29 186
Vaneck Vectors MSCI World ex A QHAL 24.22 -- 1
ETFS Global Core Infrastructur CORE 22.90 20 75
eInvest Income Generator Fund EIGA 20.14 18 --
SPDR S&P/ASX Small Ordinaries SSO 23.28 19 181
BetaShares Global Agriculture FOOD 21.04 15 58
Vanguard Global Value Equity A VVLU 20.29 22 1272
UBS IQ Morningstar Australian DIV 19.73 35 25
SPDR S&P Emerging Markets Fund WEMG 19.84 17 547
Betashares India Quality ETF IIND 18.20 -- 30
BetaShares Global Income Leade INCM 17.76 23 99
Vanguard Global Multi-Factor A VGMF 16.95 -- 982
UBS IQ MSCI Europe Ethical ETF UBE 16.34 23 443
Vanguard Global Minimum Volati VMIN 15.88 22 221
iShares Edge MSCI Australia Mu MF 15.80 20 91
ETFS Battery Tech and Lithium ACDC 14.26 17 30
UBS IQ MSCI Asia APEX 50 Ethic UBP 12.97 19 54
Betashares Global Gold Miners MNRS 12.96 40 49
ETFS Reliance India Nifty 50 E NDIA 10.49 -- 50
Vaneck Vectors FTSE Internatio REIT 9.90 -- 308
Betashares Legg Mason Emerging EMMG 9.09 -- --
SPDR MSCI World Quality Mix Fu QMIX 21.66 30 734
UBS IQ MSCI USA Ethical ETF UBU 8.33 37 632
UBS IQ Morningstar Australia Q ETF 8.26 -- 29
ETFS S&P Biotech ETF CURE 6.97 40 115
UBS IQ MSCI Japan Ethical ETF UBJ 6.41 21 307
iShares MSCI Taiwan ETF/AU ITW 5.55 30 --
K2 Global Equities Fund KII 3.57 -1 --
Vanguard Total Stock Market ET VTS 193583.00 31 3593
Vanguard FTSE All-World ex-US VEU 36631.90 21 3352
SPDR S&P 500 ETF Trust SPY 426479.00 32 505
Russell Invest Aust Responsibl RARI 171.09 22 65
Fidelity Global Emerging Marke FEMX 54.83 32 37
eInvest Future Impact Small Ca IMPQ 0.36 -- --

 

Why do people invest in ETFs?

According to BetaShares’ most recent ETF report, the most common reasons investors used ETFs were diversification (over 75 per cent), lower cost (64 per cent) and access to overseas markets (57 per cent).

Other reasons noted were liquidity, flexibility and avoiding risk. Many of the reasons fall under three common headers: flexibility, greater exposure, lower costs.

 

1. Flexibility

ETFs can also fit in with a variety of investment strategies whether defensive or progressive.

BetaShares CEO Alex Vynokur told Stockhead some may buy ETFs as a defensive strategy, particularly those that invest in corporate bonds.

“Nobody really buys them [bond-focused ETFs] thinking they’ll receive significant returns, they think about the preservation of capital or the negative correlations with equities,” he said.

But only a few months ago, Betashares launched a series of diversified ETFs that offered multiple assets in the one ETF and would suit growth objectives.

The most progressive is the BetaShares Diversified High Growth ETF (ASX:DHHF), which according to the company is 90 per cent growth and 10 per cent defensive.

 

2. Greater exposure 

Beyond that they also allow exposure to assets that are difficult to invest in. One example is US stocks. Betashares has an ETF for that – the NASDAQ 100 ETF (ASX:NDQ).

Betashares also offers exposure to currencies, with no less than five funds that hold physical currency, including a US dollar ETF and a UK pound ETF.

If currency goes up, the fund is designed to go up too. The fund managers hold physical cash in bank accounts. Interest accrues to the benefit of the fund.

Or maybe you want exposure to certain themes like cybersecurity, artificial intelligence or even the rise of India. Again, there are ETFs for all of them.

 

3. Lower costs

Another trait of traditional funds is high fees. Hedge funds for example charge management and performance fees – the former is typically a percentage of a fund’s net asset value and ranges from 1 to 4 per cent per annum.

ETFs however charge far lower – the average ETF fee (globally) was 0.26 per cent in May 2019. But US institution Salt Financial went even further and launched an ETF that temporarily gave investors 50c back for every $US1,000 ($1,444) in its fund. In effect, paying them to invest.

But this offer will end in April 2020 and even before then the regular fees apply once you’ve invested over $100m in Salt’s ETF.

 

What are the risks?

As with any financial product, ETFs are not without risks and pitfalls. Many of these stem from misconceptions about ETFs.

It is easy to sit back and relax thinking the portfolio managers will handle everything for you and if the market crashes you can quickly sell out, but this may not be the case.

As with any financial product you should seek advice before making any financial product decisions. But some analysts argue ETFs may be seen as an easy escape from having to do your home work.

Kris Walesby from ETF Securities said at a Bloomberg seminar back in October that investors had to do their research.

“Many read the title of the ETF and get in,” he said. “Many think ‘it’s a US yield fund so I know how it works’. They don’t know what it does.

“When Obama passed regulation easing on Cuba, the ticker with CUBA went up even though it had nothing to do with Cuba.

“People expect simplicity because it’s an ETF, but they’re on a scale of complexity. You do need to do research.”

 

ETFs aren’t necessarily liquid

Also just because they are theoretically liquid (being on a public market), there is no guarantee in practice, especially on dour days.

Wealth Within chief analyst Dale Gillham told Stockhead this is because institutions do not buy ETFs – it is predominantly retail investors.

“In any stock market crash you can always sell the top stocks, on the worst day,” he said. “I can sell whatever I want to and got out and had my money in three days. But nobody can do that with managed funds.”

 

Individual stocks v ETFs

Gillham also told Stockhead you may be better off just buying individual stocks. He argued any investor who did this would have out-performed any index ETFs particularly because they would not have paid performance fees.

“An ETF cannot beat an index because if they’re investing in an ASX 200 they’re either buying all of the 200 in the weighting, or taking positions using some form of derivative to give a cover of the index,” he said.

“At the end of the day they’re trying to match the market doing and theoretically what its doing, they’re doing. But they’re charging fees.”

Read More about ETFs:
Here’s what BetaShares’ CEO thinks about ETF growth in 2019 and what they look for
Commission-free trading is ramping up but experts warn investors to do the homework
Index-based ETFs don’t actually beat the market and they’re not liquid, analyst says