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Exchange Traded Funds (ETFs) have become a popular choice for Australians looking to diversify their investment portfolios. An ETF is a pooled collection of assets that tracks a specific index, sector, or commodity, offering the opportunity to invest in a broad range of assets rather than shares of a single company.
While ETFs differ from individual stocks, they function similarly in that they can be bought and sold on stock exchanges globally, just like shares.
In Australia, ETFs have gained significant popularity, even surpassing managed funds. According to Betashares, around two million Australians now own ETFs, representing a 7% growth from the previous year. The 2023 Betashares/Investment Trends ETF Report attributes this growth to the convenience and diversification ETFs offer. Betashares also projects that net investor flows could exceed $20 billion next year, with funds under management potentially reaching $180 billion by the end of 2024.
Managed funds, while similar to ETFs, are not traded on exchanges and typically involve more paperwork and higher minimum investment amounts, making them less accessible for some investors. ETFs, on the other hand, are increasingly becoming entry-level investments for those new to the market. The 2023 ASX Investor Study found that ETF adoption among Australian investors has risen from 15% to 20% over the past three years, with 14% of new investors starting with ETFs in the last two years.
For those looking to join the growing number of ETF investors, choosing the right ETF can seem challenging. While ‘best’ is subjective and depends on factors such as risk tolerance, Forbes Advisor has analyzed a range of ETFs to identify top choices for Australian investors this year.
The selection process focused on representing a diverse array of ETFs to cater to different preferences and interests, including low fees, diversification, international exposure, ESG (environmental, social, and governance) considerations, and long-term performance. While performance was a key factor, it wasn’t the only criterion; the goal was to reflect the varied priorities of investors by evaluating ETFs based on a broad set of standards.
