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Australia ETFs Guide

exchange traded funds in Australia. The guide covers: the ETF structure (the "exchange traded fund basics") — the ETF is the "managed investment vehicle" that holds the "basket of assets" (the "shares, the bonds, the commodities, the property") and trades on the "ASX" (the "Australian Securities Exchange") like the individual share; the investor buys and sells the ETF units through the "brokerage account" (the "CHESS-sponsored" or the "custodian-based") at the "market price" during the trading hours; the ETF provides the "instant diversification" (the "exposure to 100 to 2,000 underlying securities in the single transaction") and the "low management fees" (the "expense ratio of 0.04% to 0.80% per annum"); the types of the ETFs available in Australia (the "ETF categories on the ASX") — (a) the "index ETFs" (the "passive ETFs" tracking the "ASX 200", the "S&P 500", the "MSCI World" — the "lowest fees at 0.04% to 0.20%"), (b) the "active ETFs" (the "active management" within the "ETF wrapper" — the "higher fees at 0.50% to 1.20%"), (c) the "thematic ETFs" (the "AI and the technology, the cybersecurity, the clean energy, the healthcare, the gaming"), (d) the "bond ETFs" (the "Australian government bonds, the corporate bonds, the international bonds"), (e) the "currency-hedged ETFs" (the "hedged version of the global ETFs — the "AUD-hedged S&P 500" reducing the currency risk"), (f) the "commodity ETFs" (the "gold, the silver, the oil"), (g) the "property ETFs" (the "A-REIT and the global REIT exposure"), (h) the "cash ETFs" (the "money market ETFs" for the "cash allocation"); the tax treatment of the ETFs (the "distributions and the capital gains") — the ETF pays the "annual distributions" (the "income distribution" comprising: (a) the "dividends" and the "franking credits" from the Australian shares, (b) the "interest" from the bonds, (c) the "realised capital gains" from the internal trading); the investor includes the "distribution" in the assessable income and claims the "franking credits" as the tax offset; the investor also incurs the "CGT" when selling the ETF units — the "50% CGT discount" applies for the "held more than 12 months".

Popular ASX ETF Categories

  • Australian equity ETFs: The most popular AU equity ETFs include: the "VAS" (the "Vanguard Australian Shares Index ETF" — the "ASX 300 index"), the "A200" (the "BetaShares Australia 200 ETF" — the "ASX 200 index"), the "IOZ" (the "iShares Core S&P/ASX 200 ETF"). The typical yield is 3.5% to 4.5% per annum with the 70% to 90% franking on the distributions.
  • International equity ETFs: The popular global ETFs include: the "VGS" (the "Vanguard MSCI Index International Shares ETF" — the "developed markets excluding Australia"), the "IVV" (the "iShares S&P 500 ETF" — the "US S&P 500 index"), the "NDQ" (the "BetaShares NASDAQ 100 ETF" — the "US technology index"). The international ETFs pay the "unfranked dividends" (the "no franking credits" from the foreign companies).
  • Fixed income ETFs: The bond ETFs include: the "VAF" (the "Vanguard Australian Fixed Interest Index ETF" — the "Australian government and the corporate bonds"), the "BND" (the "BetaShares Australian Bond ETF"), the "IGHF" (the "iShares Global Government Bond ETF"). The bond ETF distributions are taxed as the "interest income" at the marginal rate.

For the CGT on the ETF investments and the 50% discount, see our Capital Gains Tax Guide →.

ETF Investing Strategies

  • Dollar-cost averaging: The investor can invest in the ETFs through the "regular investment plan" (the "periodic purchase of the ETF units" — the "monthly or the quarterly investment"). The dollar-cost averaging reduces the timing risk and builds the position over the time. The "brokerage platforms" (the "CMC Markets, the Pearler, the SelfWealth") offer the "free or the low-cost regular investing".
  • Tax-effective structure: The investor can hold the "Australian shares ETFs" in the "personal name" (the "benefit of the franking credits offset") and the "international ETFs" in the "superannuation fund" (the "15% tax on the unfranked dividends vs the marginal rate of 30% to 45% in the personal name"). The SMSF can also hold the currency-hedged international ETFs.
  • Core and satellite approach: The "core portfolio" consists of the "broad market index ETFs" (the "VAS and the VGS" at the "70% to 80% allocation"), and the "satellite portfolio" consists of the "thematic ETFs" (the "AI, the cybersecurity, the clean energy") at the "20% to 30% allocation".

For the franking credits and the dividend imputation, see our Investment Income Tax Guide →.