Best Aussie ETFs: My Top 3 Aussie ETFs in 2021 (VAS vs A200 vs IOZ)

Share this with a Pal

It’s time to dissect the best Aussie ETFs tracking Australian companies. Betashares Australia 200 ETF (ASX:A200) vs Vanguard’s Australian Shares Index ETF (ASX:VAS) vs iShares Core S&P/Asx 200 ETF (ASX:IOZ).

Straight off the bat (cricket pun intended), I should note that VAS, A200 and IOZ are popular here in Australia. 

So popular that they account for two of Pearlers top three most popular ETFs. And that’s for good reason. They’re all great vehicles for investors to access Australia’s largest companies through low cost, diversified ETFs. 

With that said, there are some subtle differences you should consider before taking the plunge into either VAS, A200 or IOZ.  

VAS, A200 and IOZ are some of the best Aussie ETFS, but international diversification is key.

Don’t get me wrong, I take as much pride as the next person in our biggest, and best companies. Especially our heavy hitters in the health sector like CSL, Cochlear and Resmed.

Like most Aussies, I’m also familiar with our largest corporations, which makes investing in them much more palatable. Especially for newer investors. 

For Aussie investors, it’s easy to stick to what you know, but for investors looking to build a diversified portfolio, it wouldn’t be prudent to concentrate your portfolio in one country or continent. Why? because you never know when its financial winter will come. 

The land of the rising sun, not rising stocks.

Take Japan’s long financial winter as an example. In the late 80s, the Japanese stock market collapsed and has only recently (2021) eclipsed its previous all-time high. Over the same period, the S&P 500 grew at roughly 9% per year, excluding dividends.

There’s no question VAS, A200 and IOZ are some of the best Aussie ETFs for investing in Australian companies, but investors should strongly consider some international exposure to avoid regional concentration risk.

Without being captain obvious, it would have sucked having all your eggs in Japanese stocks during their long period of underperformance. 

Best Aussie ETFs for International exposure.

If you’re interested in learning more about ASX listed ETFs that can provide you with international exposure, check out these articles:

Need to sharpen up on your ETF do’s & dont’s? I’ve got you covered.

Before I unpack VAS, A200 and IOZ, here’s a link to an investing basics article I wrote about the fundamentals of ETFs in case you needed a brush-up before we get into specific ETF talk.

If you’d like to read about a specific ETF covered in this article or want my verdict, use the links below: 

etf meme

Best Aussie ETFs #1 – Vanguard Australian Shares Index ETF (ASX:VAS)

Kicking off with Vanguard’s contender, we begin with their hugely popular Australian Shares ETF, VAS.  VAS was created to mimic the returns of the S&P/ASX 300 Index

Vanguard first listed VAS way back in 2009, and provides investors with an opportunity to buy, and hold a basket of Australia’s largest 300 companies (roughly) at low cost, firmly placing it among the best Aussie ETFs tracking Australian companies.

VAS won’t beat the market, it is the market!

It’s important to remember that all three of the ETFs I discuss today won’t beat the market. Why? Because they are the market! 

The ASX 200 (A200 and IOZ benchmark) and ASX 300 (VAS benchmark) indexes are two of the most commonly employed benchmarks investors use to gauge the Australian share markets performance. Meaning you’re literally getting the Australian share markets return by investing in any one of VAS, IVV, or IOZ. And there’s absolutely nothing wrong with that!

S&P Global’s Spiva Report revealed that a staggering 86.3% of Australian Equity Funds trying to pick stocks failed to outperform the ASX 200 over a 15 year period. So remember that when you’re contemplating scratching that stock-picking itch. 

If you’re looking for the best Aussie ETFs for diversification, VAS is your best bet. 

Unlike A200 and IOZ, which both track the performance of the ASX 200, VAS tracks the performance of the ASX 300. 

What’s the difference I hear you ask? I’ll give you a hint, it’s all in the name. Rather than covering the top 200 ASX shares by market cap, another 100 companies are tacked onto the bottom of the index. Simples. 

All that means for you is that by holding VAS, you’ll own shares in Australia’s largest 300 companies (approximately) by market cap instead of the top 200.

The biggest benefit that comes with that is the added diversification that comes with owning an additional 100 companies. That said, the bottom 100 companies only account for roughly 3% of the total index, making it difficult for them to move the needle performance-wise. 

ASX 300 or ASX 200? Which one has performed better over time?

Because VAS tracks the performance of the ASX 300, so it’s more diversified in comparison to IOZ or A200, but has that added diversification led to better performance?

According to Vanguard, VAS has returned 28.46% over the past year (to 30/06/21), 9.74% over the past 3 years and 11.2% over the past 5 years. All after fees with dividends reinvested. 

To compare the performance of VAS to an ETF benchmarked against the ASX 200, let’s call up iShares IOZ. 

After fees, IOZ has provided holders with a 28.28% return over the past year (to 30/06/21), 9.68% over the past 3 years and 11.02% over the past 5 years with dividends reinvested, and after fees.

VAS has performed slightly better than IOZ and A200.

In short, VAS has performed slightly better over the past 5 years in comparison to the ASX 200 benchmarked ETFs, but the difference in performance certainly isn’t extreme.

It should also be said that past performance is no guarantee of future performance, so which benchmark performs better over the next 1, 2, 3 or 5 years is anyone’s guess!

Want to know more about VAS?

You can check out the latest VAS fact sheet provided by Vanguard if you’re keen on doing some further reading on VAS. 

 VAS Key Facts:

Use the table below to grab all the key facts about VAS you need to get comfortable with it!

As of 31/06/2021VAS
ETF IssuerVanguard
Management Fee0.10% P.A
Benchmark IndexS&P/ASX 300 Index
Dividend Reinvestment PlanYes
Dividend Yield2.7%
Income Distribution FrequencyQuarterly
Top 10 Holding Concentration 44.3%
3Yr Return9.74%
Return Since Inception (2009)9.72%
Funds Under Management (FUM)$8.8B
Number of Holdings (ETF)306
Weighting MethodologyMarket Cap Weighted
Listed Since2009
Top 10 Holdings (highest to lowest concentration)Commonwealth Bank, BHP, CSL, Westpac Bank, National Australia Bank, ANZ Bank, Wesfarmers, Woolworths Group, Macquarie Group & Rio Tinto.
Top 10 Holding Concentration44.3% of the total ETF holdings

Best Aussie ETFs #2 – Betashares Australia 200 ETF (ASX:A200)

Betashares have managed to provide investors with easy access to low cost investing through their Australia 200 ETF, A200. Listing in 2018, A200 tracks the returns of Australians’ top 200 (approximately) companies by market capitalisation.  

If you’re looking for low cost, then A200 could be the best Aussie ETF for you.

With a management fee, or MER (management expense ratio) of just 0.07% P.A, A200 offers investors the most cost-effective product in comparison to VAS (0.10% P.A), and IOZ (0.09% P.A)

Between VAS, A200 and IOZ, A200 was last to list on the ASX. With that in mind, it seems Betashares undercut their competitors in a bid to sway investors their way. Well played, Betashares, you cheeky things. 

A200 is 22% and 30% cheaper than IOZ and VAS respectively, but when we’re talking about such small MER’s, the difference in actual fees paid is negligible.

For example, the management fees for A200 would be $7 for every $10,000 invested. Compare that to IOZ, where the management fees would be $9 for every $10,000 invested, and you soon realise that the difference is really nothing to be overly concerned about. 

Should I sell VAS/IOZ and buy A200 because it’s slightly cheaper? 

Yes, A200 is marginally cheaper than VAS and IOZ, but the actual difference in fees you’ll need to pay wouldn’t be of huge concern unless you’re fortunate enough to have tens of millions of dollars invested.

Even then, a possible capital gains tax event and the transaction costs associated with selling and buying are worth considering before liquidating any positions. 

Why is A200 cheaper than VAS and IOZ?

A large cost associated with an ETF is the index it tracks. Fees need to be paid by the ETF issuer to the index provider. What’s unique about A200 is that it tracks the returns of the Solactive Australia 200 Index, whereas VAS and IOZ both license their indexes from Standard & Poors. 

I suspect the reason Betashares are able to offer A200 at a discount is that they’re licencing a Solactive index, rather than the well known, and likely more expensive Standard & Poors index, which means the savings can be passed onto you!

Want to know more about A200?

You can check out the latest A200  fact sheet provided by Betashares if you’re keen on doing some further reading. 

A200 Key Facts:

Use the table below to grab all the key facts about A200 you need to get comfortable with it!

As of June 30 2021A200
ETF IssuerBetashares
Management Fee0.07% P.A.
Benchmark IndexSolactive Australia 200 Index
Dividend Reinvestment PlanYes
Dividend Yield2.2%
Income Distribution FrequencyQuarterly
3Yr Return10.09%
Return Since Inception9.63%
Funds Under Management (FUM)$1.47B
Number of Holdings (ETF)201
Weighting MethodologyMarket Cap Weighted
Listed Since2018
Top Ten Holdings (Highest to lowest concentration)Commonwealth Bank, BHP, CSL, Westpac Bank, National Australia Bank, ANZ Bank, Wesfarmers, Macquarie Group, Woolworths Group & Rio Tinto
Top Ten Holding Concentration45.5% of the total ETF holdings.

Best Aussie ETFs #3 – iShares Core S&P/Asx 200 ETF (ASX:IOZ)

Lastly, we arrive as iShares S&P/ASX 200 ETF, more commonly known as IOZ. Similarly to VAS and A200, IOZ provides investors with low-cost access to the Australian share market. IOZ aims to track the returns of the S&P/ASX 200 index before any fees and expenses. 

An ETFs size is really, really important to be aware of, and IOZ ticks the box.  

An important factor worth considering before investing in any ETF is their funds under management or FUM.

I try to steer clear of ETFs with FUM under $AUD 100m because smaller ETFs bear an increased risk of closing down.

ETF Managers can pull the pin on ETFs simply because they haven’t gained enough traction to remain viable, which is a risk I’m hesitant to take. 

Another negative of smaller ETFs is that they often come with higher bid/ask spread fees because they’re less frequently traded. 

IOZ is hugely popular among Aussie investors.

In the case of IOZ, it has an enormous FUM of $3.8Bn, making it the second-largest ETF on this list.

According to Stockspot, IOZ is also the second most popular ASX listed ETF in terms of FUM growth. From March 2020 to March 2021, the IOZ FUM grew by 167%!

Broadly speaking, IOZ, VAS and A200 all have over a billion dollars in FUM. The trio’s large FUM numbers suggest that they’re all hugely popular, and frequently traded. That’s a tick in the box for me! ✔️  

Do the best Aussie ETFs pay generous dividends? 

The Aussie stock market is well known for its dominant contingent of established banking and resources companies, all of whom pay generous dividends.

Within IOZ, VAS and A200, 5 banks and 2 resources companies are included in their top ten most heavily weighted companies!

For that reason, investors in all three ETFs can’t complain when it comes to dividends. All three offer dividend yields north of 2%, and include dividend reinvestment plans. How good is that!

IOZ Key Facts:

Use the table below to grab all the key facts about IOZ you need to get comfortable with it!

As of 30 June 2021.IOZ
ETF IssueriShares
Management Fee0.09% P.A.
Benchmark IndexS&P/ASX 200 Index
Dividend Reinvestment PlanYes
Dividend Yield2.4%
Income Distribution FrequencyQuarterly
3Yr Return9.47%
Return Since Inception8.53%
Funds Under Management (FUM)$3.8Bn
Number of Holdings (ETF)202
Weighting MethodologyMarket Cap Weighted
Listed Since2010
Top Ten HoldingsCommonwealth Bank, BHP, CSL, Westpac Bank, National Australia Bank, ANZ Bank, Wesfarmers, Macquarie Group, Woolworths Group & Rio Tinto.
Top Ten Holding Concentration44.71% of the total ETF holdings.

Want to know more about IOZ?

You can check out the latest IOZ  fact sheet if you’re keen on doing some further reading. 

Jesse’s verdict on the best Aussie ETFs.

The great thing about all three of these ETFs is that they give investors a low-cost solution to garner their share of returns from Australia’s biggest, and best companies. 

In terms of which one I’d buy, it’s really a flip of coin decision because there’s really not much between the three of them. 

If it’s some additional diversification you’re after then the obvious choice is VAS because it tracks a larger pool of companies.

Or if you’re looking for rock-bottom fees, then A200 is your go-to, but as I mentioned earlier unless you’ve got millions to invest, the small differences in fees isn’t really a show stopper. 

Start your compounding machine sooner, rather than later.

Lastly, I’d say don’t spend too much time trying to decipher between VAS, A200 or IOZ. All three will do more or less the same thing, so it’s worth selecting one and just getting started. After all, for compound interest to do its thing, it requires time in the market!

Want to build financial independence but don’t know how or where to start?

Check out Pearler! Pearler is THE broker for long term investors looking to build generational wealth. If you sign up to Pearler using this link, your first trade is free!

Want to see more articles like this? You can sign up for our newsletter to get free content first by e-mail!

photo of jesse

About The Author – Jesse
Hi, I’m Jesse, but you can call me Jes for short. My passion is simple, I’m on a mission to make the world of investing easily understood by removing the ‘too hard basket’ stigma that surrounds it.

Disclaimer: This website (the “The Money Pal”) is published and provided for informational and entertainment purposes only.  The information in the Blog constitutes the Content Creator’s own opinions and it should not be regarded as financial advice.

Leave a Reply

*