Also read:The best performing ETFs of 2020
The cheapest ETFs on the ASX in 2020
The cheapest ETF has an annual fee of 0.03% with average returns of 17% over five years.
While fees play a key role in the long-term success of many ETFs, it's also to important to consider other factors, such as short-term and long-term performance figures and how these compare to others in the market.
Below are the 20 cheapest ETFs on the ASX to date by management fees, or "management expense ratio" (MER). This is the annual fee charged by fund managers as a percentage of the assets held in the fund.
The returns shown are net, meaning fees have been removed prior to the performance figures.
|Fund name||Code||Type||Fee (% p.a.)||1-yr return||3-yr return||5-yr return|
|Vanguard US Total Market Shares Index ETF||VTS||ETF||0.03||31.82%||15.54%||17.33%|
|iShares S&P 500 ETF||IVV||ETF||0.04||32.28%||16.02%||17.77%|
|Betashares Australia 200 ETF||A200||ETF||0.07||24.36%||n/a||n/a|
|iShares Core Cash ETF||BILL||ETF||0.07||1.52%||n/a||n/a|
|iShares S&P Small-Cap ETF||IJR||ETF||0.07||23.41%||9.25%||15.10%|
|iShares S&P Midcap ETF||IJH||ETF||0.07||28.12%||10.24%||14.65%|
|iShares Core MSCI World All Cap ETF||IWLD||ETF||0.09||27.93%||12.79%||n/a|
|iShares Core S&P/ASX 200 ETF||IOZ||ETF||0.09||25.19%||11.50%||9.72%|
|Vanguard All-World ex US Shares Index ETF||VEU||ETF||0.09||22.21%||11.12%||9.19%|
|SPDR S&P 500 ETF Trust||SPY||ETF||0.09||31.47%||15.35%||n/a|
|iShares S&P 500 AUD Hedged ETF||IHVV||ETF||0.10||29.98%||13.87%||n/a|
|Vanguard Australian Shares Index ETF||VAS||ETF||0.10||25.14%||11.62%||9.78%|
|iShares Core MSCI World All Cap AUD Hedged ETF||IHWL||ETF||0.12||25.68%||11.16%||n/a|
|iShares Enhanced Cash ETF||ISEC||ETF||0.12||1.77%||n/a||n/a|
|Perth Mint Gold||PMGOLD||SP||0.15||20.68%||10.57%||8.47%|
|UBS IQ MSCI Australian Ethical ETF||UBA||ETF||0.17||24.51%||12.00%||n/a|
|Vanguard Ethically Conscious International Shares Index ETF||VESG||ETF||0.18||30.09%||n/a||n/a|
|Vanguard MSCI Index International Shares ETF||VGS||ETF||0.18||29.13%||13.79%||n/a|
|UBS IQ Cash ETF||MONY||ETF||0.18||1.46%||n/a||n/a|
|Betashares Australian High Interest Cash ETF||AAA||ETF||0.18||1.69%||1.92%||2.24%|
|Source: ASX | Period ending: 31 December 2019|
How do the cheapest compare to the market?
The cheapest ETFs shown above delivered impressive figures in 2019. The fund with the lowest fees on the market, Vanguard's US Total Market Shares Index (VTS) returned 31.8% in 2019 alone.
However, 2019 was an especially strong year for the ETF market, with 60% of all ETFs delivering returns of more than 20%. You can check out the average figures below to start comparing.
A few averages worth noting (to 31 December 2019):
- Average ETF return over 1 year: 20.54% p.a.
- Average ETF return over 3 years: 9.46% p.a.
- Average ETF return over 5 years: 7.44% p.a.
- Average ETF management fee (MER): 0.49%
While 16 out of 20 of the lowest cost funds beat the average returns over one year, that trend increases over a longer time frame, with all but one fund under-performing over five years.
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How do the cheapest compare to the best?
While cheaper fees tends to correlate with above average performance over many years, the same does not appear true for the top performing funds.
If you take a look at the best performing ETFs on the Australian Securities Exchange (ASX) in 2019, you'll notice their fees aren't necessarily the cheapest. In fact, many of the highest returning funds have management fees that are well above the average of 0.49%.
Of those 20 cheapest funds listed above, none are featured among the best performers list of 2019 – while 4 are featured in the worst performing list. Meanwhile, last year's highest performing ETF – the BetaShares GGUS fund – has fees of 0.80%, much higher than the average.
|Fund name||ASX code||Type||Fee (% p.a)||1 year total return|
|BetaShares Geared US Equity Fund Currency Hedged (Hedge Fund)||GGUS||MF||0.80||70.50%|
|BetaShares Geared Australian Equity Fund (Hedge Fund)||GEAR||ETF||0.80||55.25%|
|ETFS Physical Palladium||ETPMPD||SP||0.49||51.42%|
|BetaShares Global Gold Miners ETF - Currency Hedged||MNRS||ETF||0.57||50.99%|
|VanEck Vectors Gold Miners ETF||GDX||ETF||0.53||45.58%|
|VanEck Vectors China New Economy ETF||CNEW||ETF||0.95||40.02%|
|BetaShares NASDAQ 100 ETF||NDQ||ETF||0.48||39.66%|
|ETFS Morningstar Global Technology ETF||TECH||ETF||0.45||39.15%|
|AMP Capital Global Infrastructure Securities Fund (Unhedged) (Managed Fund)||GLIN||MF||0.85||38.64%|
|UBS IQ Morningstar Australia Dividend Yield ETF||DIV||ETF||0.30||37.59%|
|UBS IQ MSCI USA Ethical ETF||UBU||ETF||0.20||37.48%|
|BetaShares Global Sustainability Leaders ETF||ETHI||ETF||0.59||36.94%|
|VanEck Vectors MSCI World Ex-Australia Quality ETF||QUAL||ETF||0.40||36.91%|
|VanEck Vectors Morningstar Wide Moat ETF||MOAT||ETF||0.49||36.84%|
|BetaShares Asia Technology Tigers ETF||ASIA||ETF||0.67||36.05%|
|ETFS S&P Biotech ETF||CURE||ETF||0.45||35.55%|
|BetaShares Global Quality Leaders ETF||QLTY||ETF||0.35||35.12%|
|VanEck Vectors ChinaAMC A-Share ETF||CETF||ETF||0.72||34.03%|
|iShares MSCI Taiwan ETF||ITW||ETF||0.59||33.75%|
|WCM Quality Global Growth Fund (Quoted Managed Fund)||WCMQ||MF||1.35||33.63%|
|Source: ASX | Period ending: 29 December 2019 | SP = Structured Product, MF = Managed Fund / Active ETF, MER = Management Expense Ratio (aka fees).|
Why are some funds cheaper than others?
Exchange traded funds typically have low management fees (MER) compared to regular managed funds because most of them are are index funds. Index funds passively track a stock market index, such as the S&PASX200 index, so they need little legwork from the fund managers and can charge cheaper fees (MER) for the service.
Because index funds mirror the returns of the stock market, the don't usually beat it, but they do perform consistently and tend to be lower risk than other kinds of funds.
Hence, many of the best performing ETFs are more strategic or riskier than a standard index fund. And because of this, they often charge a higher management fee for the service.
For example, the best performing ETF, BetaShares Geared US Equity Currency Hedged fund (GGUS), is an actively managed fund that combines both debt and equity assets. Although it returned an enormous 70% in 2019, it is a much riskier investment than most other listed funds in Australia.
What fees do you pay when you invest in ETFs?
These are the two main fees you'll need to consider when investing in an ETF:
- Management Expense Ratio (MER): This is the annual management fee charged by the ETF provider. It's typically charged before performance figures are released and is usually between 0.1% - 1% of assets.
- Brokerage fee: This is the fee charged by the broker or online trading platform every time you invest in a stock or ETF. This is typically around $10 to $30 per trade.
So, do fees matter?
Fees absolutely matter, especially over many years. While ETFs are relatively new to the market, long-term studies of super fund performance show that high fees are strongly correlated with long-term performance.
Among the cheapest ETFs on the ASX, just 1 underperformed the average over 5 years while all but 2 of the 15 funds outperformed over 3 years. It's also worth noting that the cheapest ETFs listed above are a mix of every category – including active, passive, global, Aussie, high and low-risk.
What the data above does show is that fees are not the only consideration worth thinking about – and for some investors, not the most important.
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