Posted

Here is your guide to the Best ETFs in Australia to invest in for 2020.

This list only includes ETFs that are listed on the ASX - those that Aussies can easily buy!

Don't have time to read the full guide? Jump straight to each sector to find the Best Australian ETF for that market using the links below:

Best ETF for Aussie Shares

VAS - Vanguard Australian Shares ETF

Why do I recommend VAS as the best ETF for Aussie Shares?

  • VAS has the lower management fee of comparable ETF's at 0.1%
  • That means it only costs you $1.00 per yyear for every $1,000 you have invested
  • It is the best ETF in Australia to get exposure to the ASX 300 Index
  • Because VAS invests in Australian companies it pays you franked dividends
  • VAS offers a Distribution Reinvestment Program
  • Instead of receiving a cash dividend, Vanguard will automatically buy you more shares in VAS using the money in your distribution payout. (This means there are NO brokerage fees)
  • The fund manager is Vanguard, one of the most trusted financial groups in the world

What does VAS track?

VAS invests in the ASX 300 Index which tracks the largest 300 companies on the Australian Stock Exchange. The ASX 300 includes all of the top 200 companies in the ASX 200 and then another 100 smaller companies.

What shares does VAS invest in?

The top 10 share holdings of VAS as of May 31, 2020 are:

  1. CSL Ltd. - ASX:CSL
  2. Commonwealth Bank - ASX:CBA
  3. BHP Group Ltd. - ASX:BHP
  4. Westpac Bankding Corp. - ASX:WBC
  5. National Australia Bank Ltd. - ASX:NAB
  6. Australia & New Zealand Banking Group Ltd. - ASX:ANZ
  7. Woolworth Group Ltd. - ASX:WOW
  8. Wesfarmers Ltd. - ASX:WES
  9. Telstra Cord. Ltd. - ASX:TLS
  10. Transurban Group - ASX:TCL

Find out more by reading Vanguard's VAS Fact Sheet.

Best ETF for Global Shares

VGS - Vanguard International Shares ETF

Why do I recommend VGS as the Best ETF for International Shares?

  • VGS invests in 1,500+ different international shares from around the globe
    • Why buy thousands of individual international shares when you can buy a single ETF that does all the work for you!
  • VGS has a very low management fee of 0.18% pa
    • That's a pretty cheap way to become an owner of 1,500+ different international shares!
  • The fund is domiciled in Australia, which means it is tax efficient for Australian investors
    • Other Vanguard ETF's that invest in international shares, such as VEU and VTS, are based in the USA and are not truly Australian ETFs
    • Investing in ETFs like VEU and VTS is not recommended and can lead to complicated international tax obligations
    • The USA has death taxes which can be triggered if you own USA based shares!
    • Vanguard Australia introduced VAS and VGS as replacement options for VTS and VEU and I recommend sticking to these latest and greatest offerings
  • The MSCI World Ex-Australia index that VGS invests in excludes any companies that are listed in Australia
    • This makes VGS the perfect companion ETF to VAS. By investing in both VAS and VGS you are invested in all of the top companies from the developed world

VGS is actually one of the best ETFs to buy in Australia because of the low cost international diversification it provides in a single ETF.

What index does VGS track?

VGS invests in the MSCI World Ex-Australia index which tracks large and mid cap international companies. The index tracks over 1,500 different companies from 22 of the safest and well known international countries including:

  • USA
  • Japan
  • UK
  • France
  • Canada
  • Germany
  • Switzerland
  • Hong Kong
  • Singapore

What shares does VGS invest in?

The top 10 share holdings of VGS as of May 31, 2020 are:

  1. Apple Inx. - NASDAQ:AAPL
  2. Micrsoft Corp. - NASDAQ:MSFT
  3. Amazon.com Inc. - NASDAQ:AMZN
  4. Alphabet Inc. - NASDAQ:GOOGL
  5. Facebook Inc. - NASDAQ:FB
  6. Johnson & Johnson - NYSE:JNJ
  7. Visa Inc. - NYSE:V
  8. Nestle SA - SWX:NESN
  9. JPMorgan Chase & Co. - NYSE:JPM
  10. Procter & Gamble Co. - NYSE:PG

Find out more by reading Vanguard's VGS Fact Sheet.

Best ETF for Emerging Markets

VGE - Vanguard Emerging Markets ETF

Why do I recommend VGE as the best ETF for Emerging Markets?

  • VGE has the lower management fee for comparable ETFs at 0.56%
    • Yes this is higher than ETFs such as VAS and VGS, but we are still talking $5.60 per year for every $1,000 you have invested
    • Try buying share in 1,100+ companies around the world for less than six dollarydoos a year.
  • You get exposure to 1,200+ companies in a single ETF purchase
    • Choose this ETF if you want to invest in countries such as Brazil, Russia, India, China, South Korea, Taiwan and South Africa
  • VGE is yet another ETF issued by Vanguard
    • Are you beinning to understand why Vanguard dominates the ETF industry?

What index does VGE track?

VGE invests in the MSCI Emerging Markets Index. This index tracks over 1,200 companies from 24 countries that are considered to be emerging markets including:

  • China
  • South Korea
  • Taiwan
  • India
  • Brazil
  • South Afria
  • Russia
  • Mexico
  • Thailand
  • Malaysia
  • Indonesia

What shares does VGE invest in?

The top 10 share holdings of VGE as of May 31, 2020 are:

  1. Alibaba Group Holding Ltd.
  2. Tencent Holdings Ltd.
  3. Taiwan Semiconductor Manufacturing Co. Ltd.
  4. China Construction Bank Corp.
  5. Naspers Ltd.
  6. Meituan Dianping
  7. Ping An Insurance Group Co. of China Ltd.
  8. Reliance Industries Ltd.
  9. Industrial & Commercial Bank of China Ltd.
  10. JD.com Inc.

Find out more by reading Vanguard's VGE Fact Sheet.

Best ETF for Australian Property

VAP - Vanguard Australian Property Securities ETF

Why do I recommend VAP as the Best ETF for Australian Property?

  • VAP has the lowest management fee of comparable ETFs at 0.23% pa
  • Because VAP only invests in Australian companies it pays you franked dividends
  • VAP also offers a dividend reinvestment program that allows Vanguard to buy you extra shares in the fund using at no extra cost using your dividend payouts
  • The fund manager is Vanguard. Don't look so surprised.

If you already own VAS then you already own all of the companies that are included in VAP. VAS invests in the ASX 300 and the real estate investment trusts that VAP invests in are included in the ASX 300.

You should only consider VAP if you are specifically looking for additional exposure to Australian REITS beyond that which is included in VAS.

What index does VAP track?

VAP invests in the ASX 300 A-REIT Index. This index tracks all of the A-REITs (Australian Real Estate Investment Trusts) that are included in the ASX 300 Index.

What shares does VAP invest in?

The top 10 share holdings of VAP as of May 31, 2020 are:

  1. Goodman Group - ASX:GMG
  2. Scentre Group - ASC:SCG
  3. Dexus - ASX:DXS
  4. Mirvac Group - ASX:MGR
  5. Stockland - ASX:SGP
  6. GPT Group - ASX:GPT
  7. Vicinity Centres - ASX:VCX
  8. Charter Hall Group - ASX:CHC
  9. Shopping Centres Australasia Property Group - ASX:SCP
  10. Charter Hall Long Wale REIT - ASX:CLW

Find out more by reading Vanguard's VAP Fact Sheet.

Best ETF for International Property

DJRE - SPDR Dow Jones Global Real Estate ETF

Why invest in DJRE?

  • Management fee is 0.50% pa.
  • Tracks the SPDR Dow Jones Global Select Real Estate Securities Index<
  • Fund Manager: State Street Global Advisors

Alternatively:

  • There are no other ETFs available on the Australian share market that solely invest in International Property

Best ETF for Commodities:

QCB - BetaShares Commodities Basket Currency Hedged ETF

Why invest in QCB?

  • Provides exposure to precious metals, livestock, energy, industrial metals and agriculture
  • No exposure to iron ore or coal
  • Management fee is 0.69% pa.
  • Hedged against movements in the AUD/USD exchange rate
  • Tracks the performance of an Index of Commodity Futures, the S&P GSCI Light Energy Index Excess Return (Hedged into AUD)
  • Fund Manager: Betashares

Alternatively:

  • There are no other ETFs available on the Australian share market that solely invest in a commodities basket

Best ETF for Gold

PMGOLD - Perth Mint Gold ETF

Why invest in PMGOLD?

  • Provides a fully paid call option to one hundredth of a troy ounce of physical gold
  • Lowest management fee of comparable ETFs at 0.15% pa.
  • Tracks the performance of physical Gold
  • Fund Manager: Perth Mint Australia

Alternatively: GOLD

  • Backed by physical gold held by HSBC Bank
  • Management fee of 0.40% pa.
  • Tracks the performance of physical Gold
  • Fund Manager: ETF Securities

Best ETF for Australian Bonds (Fixed Income)

VAF - Vanguard Australian Fixed Interest ETF

Why do I recommend VAF as the Best ETF for Australian Bonds?

  • Low management fee of 0.20% pa.
  • Invests in 600+ Australian Bonds issued by the Federal Government, State Government and Australian Companies
  • Fund Manager: Vanguard

What index does VAF track?

VAF tracks the Bloomberg Ausbond Composite 0+ yr Index. This index includes investment grade fixed interest bonds issued in Australia by the Federal Government, State Governments, and high quality investment grade Corporations.

What Bonds does VAF invest in?

The top 10 bond holdings of VAF as of May 31, 2020 were issued by:

  1. Australia (Commonwealth Of)
  2. Queensland Treasury Corporation
  3. New South Wales Treasury Corporation
  4. Treasury Corporation Of Victoria
  5. Western Australian Treasury Corporation
  6. Kfw
  7. South Australian Government Financing Authority
  8. European Investment Bank
  9. Inter-American Development Bank
  10. International Finance Corp

Find out more by reading Vanguard's VAF Fact Sheet.

Best ETF for International Bonds (Fixed Income)

VBND - Vanguard Global Aggregate Bond Index (Hedged) ETF

Why do I recommend VBND as the Best ETF for Australian Bonds?

  • Provides exposure to high quality income producing bonds issued by governments around the world
  • Lowest management fee of comparable ETFs at 0.20% pa.
  • Hedged in AUD to protect against foreign exchange risk

VBND is also one of the best ETFs to buy in Australia full stop because it gives you a low cost portfolio of globally diversified bonds in a single purchase.

What index does VBND track?

VBND tracks the Bloomberg Barclays Global Aggregate Float-Adjusted and Scaled Index hedged into Australian dollars. This index includes high-quality, income-generating securities issued by governments, government-owned entities, government-guaranteed entities, investment-grade corporate issues and securitised assets from around the world.

What Bonds does VBND invest in?

The top 10 bond holdings of VBND as of May 31, 2020 were issued by:

  1. United States Treasury
  2. Japan (Government Of)
  3. Federal National Mortgage Association
  4. France (Republic Of)
  5. Germany (Federal Republic Of)
  6. Italy (Republic Of)
  7. United Kingdom Of Great Britain And Northern Ireland (Government)
  8. Government National Mortgage Association Ii
  9. Spain (Kingdom Of)
  10. Federal Home Loan Mortgage Corporation - Gold

Find out more by reading Vanguard's VBND Fact Sheet.

That about sums up the Best Australian ETFs on the market.

Top 5 ETFs in Australia

One of the most frequently asked questions that I get asked is: What are the Top 5 ETFs in Australia?

With so many ETFs now trading on the Australian market it can be hard to narrow the list down to the best 5 ETFs. But if I had to choose:

  1. VGS - Vanguard International Shares ETF
  2. VAS - Vanguard Australian Shares ETF
  3. VGE - Vanguard Emerging Market Shares ETF
  4. VBND - Vanguard International Bond ETF
  5. VAF - Vanguard Australian Bond ETF

If you purchase these top 5 ETFs you will have the makings of a globally diversified ETF portfolio.

You will own ETFs that track not just the Australian Share and Bond Markets, but you will also own the best of the International Share and Bond Markets and shares from Emerging Market Countries too.

Is there an ETF you think I missed and should be recognised? Then get in touch and let me know!

Author
Categories Investing

Posted

Ever wondered how to buy an ETF in Australia?

Because ETF's trade on the ASX, buying an ETF in Australia is exactly the same as buying any other Australian share.

If you have ever bought shares in Commonwealth Bank, BHP or Telstra then you already know how to buy an ETF.

Instead of purchasing shares of companies like CBA, BHP or TLS you simply purchase shares of ETFs like VAS, VGS or VGE.

If you have never bought shares on the ASX before then read on and I will show you how to go about it.

Open an account with a broker

For most Aussies the easiest way to open a new account to buy shares with is to open a brokerage account with whichever bank you use for your everyday banking:

Alternatively you can consider opening an account with one of the non-bank brokers.

SelfWealth is the leading non-bank broker in Australia and they currently offer Australia's lowest flat-fee brokerage.

Choose which ETF you want to buy

If you don't already know which ETF you want to buy, have a read of my article about the Best Aussie ETF's.

How to Buy an ETF

For this example let's assume you want to buy shares in VAS which is the ETF for the ASX-300.

Also let's assume you have opened a brokerage account with CommSec as they are the largest broker in Australia.

Here are the steps you need to take:

  1. Log in to your brokerage account
  2. Search for VAS
  3. Select BUY
  4. Enter the number of shares you want to buy
  5. Enter the price you want to buy your shares OR
  6. Select market order if you want to buy the shares at any price
  7. Click Proceed

If you sent a market order you will purchase shares in VAS immediately.

If you entered the price you want to buy shares at your order will be sent to the marketplace and you will have to wait for someone to sell their shares to you at the price you chose.

Assuming you entered a reasonable price it shouldn't take too long to fill your order.

And now you are the proud owner of an Australian ETF!

Keep an eye out for the postie who will be bringing you a 'welcome letter' from your new ETF provider. This letter will have instructions on how to register for the Distribution Reinvestment Plan if it is offered by that particular ETF.

If you don't want to register for the dividend reinvestment plan then there is nothing left to do. Well, nothing except reporting your dividend income to the tax man when the time comes!

Author
Categories Investing

Posted

To properly understand exactly what is an ETF is you need to understand how an Index works and what an Index Fund does.

Let's look at what an Index is first.

What is an Index?

An index is a way of approximating the value of a country's share market.

Do these names sound familiar?

These are all examples of Indexes. You can hear the value of these Indexes being reported each night on the evening news.

These Indexes are used to track the value of different country's stock markets:

  • The All Ordinaries Index tracks the top 500 stocks in Australia
  • The S&P500 Index tracks the top 500 stocks in the USA
  • The Nikkei Index tracks the top 225 stocks in Japan
  • The Hang Seng Index tracks the top 50 stocks in Hong Kong
  • The FTSE100 Index tracks the top 100 stocks in the UK

Back in the day it was difficult to track the value of an entire country's stock market. For example, the Australian Stock Exchange (ASX) has over 2,000+ stocks listed. To know the value of the entire ASX would require you to know the price of every stock on the market.

And you would need to perform this calculation every single day if you wanted to know the daily value of the share market.

Indexes simplified this problem by providing an approximation of the total stock market value using only the top 30-500 stocks on the market rather than thousands of stocks.

An Index is just a list of stocks (or bonds, or sheep, or cars. ANYTHING can be an index).

But you can't buy an Index.

An Index simply tracks the value of a portfolio of things.

What if you wanted an easy way to buy the Index?

How can you easily invest in all the companies tracked by an Index?

That's where Index Funds come in.

What is an Index Fund?

An Index Fund is a managed fund that invests in the portfolio of shares that are tracked by an Index.

The companies that produce indexes such as MSCI are not involved in buying and selling shares. They simply calculate the values of indexes based on the current price of the shares in that index.

Companies such as Vanguard are fund managers who's job is to continuously buy and sell all the shares tracked by the index in an effort to replicate the performance of the index.

If you want to invest in an Index Fund you need to contact a fund manager like Vanguard or Blackrock, open an account with them, and invest your money into their index funds.

Investing in managed funds this way was how it worked for years.

Until the ETF revolution began.

But what is an ETF?

What is an ETF?

ETF stands for Exchange Traded Fund.

ETF's allow you to invest in an Index Fund without having to deal with the fund manager directly.

Because they trade on the stock exchange, ETF's can be bought and sold in the same way you would invest in any other company.

This means that you can buy ETF's through your online broker anytime the stock market is open.

With Index Funds you have to deal directly with your fund manager. Fund managers typically require minimum account values in order to talk to them. Fund managers charge you fees to buy and sell their index funds. You can see where I am going, Fund Managers are a pain.

ETF's remove all those complications and make the process much simpler and cheaper.

Just login to your brokerage account and click buy or sell.

This is why ETF's are predicted to make up 50% of the US stock market value by 2024.

Let's recap:

  • An Index tracks the value of a portfolio of shares
  • An Index Fund invests in the portfolio of shares that the Index tracks
  • An ETF is an Index Fund that is publicly traded on the stock market

Now that we understand what an ETF is, let's take a look at how to buy an ETF in Australia

Author
Categories Investing