Is the BetaShares Australia 200 (ASX: A200) ETF a good long-term investment?
Background on ETFs
Exchange traded funds (ETFs) have only come on to the investing scene over the last 10 years but have really taken off in the last 5. The first available ETFs were just plain old market tracking index funds, but now you can get an ETF tracking anything from crude oil, platinum and soy beans to the cybersecurity and biotech industries. Name your vice and there’s probably an ETF for it.
But many investors still like to stick to the traditional market-tracking ETFs, and for good reason. The logic that instead of trying to beat the market, you should just join the market is still sound. After all, most active fund managers struggle to consistently outperform an index like the S&P/ASX 200 (INDEXASX: XJO). As an individual retail investor, you don’t exactly have statistics on your side.
If you weren’t aware, an ETF that tracks the ASX 200 will hold a weighted stake in the top 200 public companies on the ASX (weighted just means that the bigger companies take up a bigger proportion of the fund). So you’re essentially buying 200 companies in one stock.
A closer look at the BetaShares Australia 200 ETF
Of the many ASX market-tracking ETFs out there, the BetaShares Australia 200 ETF often attracts a lot of attention. It’s not the largest (or even second or third largest) ASX-tracking ETF out there, well behind the likes of BlackRock’s iShares Core S&P/ASX 200 ETF (ASX: IOZ) or the Vanguard Australian Shares Index ETF (ASX: VAS).
But it is the cheapest.
A200 charges a management fee of just 0.07% per annum, in front of IOZ’s 0.09% and Vanguard’s 0.1%. A200’s 0.07% fee translates to a cost of just $7 for every $10,000 invested every year.
Game, set, match, right?
Well, here’s my problem with A200. Even though it offers the cheapest fee, the ETF is still relatively small, with $715 million in funds under management. Compare that to VAS, with more than $16 billion.
An ETF works better when there is more liquidity in its system – meaning it can track the index more accurately and with less errors. At its current size, I don’t think A200 has my complete confidence.
Its fee is another complication. BetaShares is bagging around $500,000 a year from A200, which isn’t a lot of money to run a $715 million fund when you think about it. If its size doesn’t substantially grow in the next few years, there is a real risk the ETF might shut down.
While I commend BetaShares for introducing some good old-fashioned price competition into the ETF market, looking at these statistics I would rather go with one of the bigger funds myself. Unfortunately for BetaShares, size does indeed matter when it comes to market-tracking ETFs. That’s why I like Vanguard’s offering a lot more (despite the extra 0.03%).
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.