We recently crunched some numbers in our database and found that Betashares Australian Sustainability Leaders ETF (ASX: FAIR) and Vanguard MSCI Australian Small Companies Index ETF (ASX: VSO) ranked better than most ETFs in the Australian shares sector.
About ISO & FAIR
The BetaShares FAIR ETF provides exposure to the largest Australian shares and focuses on companies that operate ethically. FAIR has been certified by the Responsible Investment Association Australasia (RIAA), as part of the Responsible Investment Certification Program. In this video, I explain the good news about Ethical Investing in Australia. It was taken from our free Ethical Investing in Australia course.
The Vanguard VSO ETF provides exposure to a diversified portfolio of Australian small caps and tracks the MSCI Australian Shares Small Cap Index. This is a low-cost way to access the performance of Australian small-cap shares through a single fund.
If you want to go beyond the basics with the FAIR ETF you can learn more about it by reading our free review.
Obviously, an easy way to analyse ETFs like VSO and FAIR is by using quantitative methods and judging the fees and past performance (note: past performance is no guarantee of future performance).
At Rask Australia and Best ETFs, our team scores ETFs and funds based on the management fees and we take into account the buy-sell spread and other costs. We’ll then compare these ‘all in’ fees and costs across sectors, strategy types and providers to get a sense of fees across the entire market.
To make this article easier to digest, we’ll just study the fees or ‘management expense ratio’ (MER). Using data for December 2020, the FAIR ETF has an MER of 0.49% while the VSO ETF had a yearly fee of 0.30%. So, VSO wins on this metric. Keep in mind, a more useful metric to know is the fee quartiles that these ETFs find themselves in (note: quartile 1 is best). Meaning, we take all the Australian shares ETFs in our database and divide them into 4 quartiles, based on their fees. For example, any ETF which has a fee below 0.3% would be considered in our first (best) quartile.
FAIR’s performance
Performance is important. Keep in mind, performance isn’t everything — and past performance is not indicative of future performance. It’s just one part of a much bigger picture. The reason we say performance is not everything is because of the volatility of financial markets and the economy from one year to the next. Some ETFs and funds can put in a good return one year just to generate poor returns the next time around. That’s why we prefer three-year or seven-year track records over one-year track records. It can smooth out the temporary performances caused by external factors. Both ETFs have achieved our three-year performance hurdle. As of December 2020, the FAIR ETF had an average annual return of 9.75%. During the same time, the VSO ETF returned 9.50%.
Now we need to scrutinise the issuer or provider of the ETF. There are too many factors that go into our internal scoring of fund providers to detail here — here’s the quick version: As you guessed, the issuer of the FAIR ETF is Betashares. Betashares ranks highly for our scores of ETF providers and issuers in Australia. We believe BetaShares is one of the leading providers of index and non-index style products to retail investors in Australia. VSO’s provider is Vanguard. Vanguard ranks highly for our scores of ETF providers and issuers in Australia. We consider Vanguard to be in Australia’s top three ETF providers for retail investors, advisers and institutions.
List of ethical ETFs
Please note: FAIR and VSO are not the only ethical ETFs in Australia. Here’s the full list of ethical ETFs. To keep reading about these two ETFs, be sure to visit our free FAIR ETF report or VSO ETF review, available on the Best ETFs website.
In summary, the VSO ETF ranks better against our internal scoring methodology but not by much compared to FAIR.
Please, keep in mind, there is much more to picking a good ETF. That’s why you should now use these skills to find the best ETF you can. If you want the name of our team’s top ETF pick for 2021, keep reading…
