In a deep dive of three ETFs – A200, the iShares Core S&P/ASX 200 ETF (IOZ), and the SPDR S&P/ASX 200 ETF (STW) – the A200 emerged as the top performer across several key metrics, according to new research from Morgan Stanley Wealth Management (MSWM).
“IOZ and A200 remain our preferred ETFs for this asset class and are included on our focus list,” the firm clarified in a client note.
“Both remain as suitable, low-cost exposures to the broad Australian equity market. We note despite the mild differences in index and portfolio construction that A200 has exhibited slightly better performance.”
Namely, A200 outperformed its peers across several categories, including one year, two years, three years, five years, and year to date.
The result was replicated across product profitability, with Betashares’ ETF recording superior flows over the 12 months to 31 May.
While A200 was the overall favourite, strengths varied across the board.
Looking at exposure, MSWM noted that IOZ and STW both track the S&P/ASX 200 Accumulation Index, whereas A200 tracks the Solactive Australia 200 Index.
However, it highlighted its preference for the former, citing its “more stringent methodology”. As such, Morgan Stanley ranked IOZ and SPDR ahead of A200 in this area.
Notably, all three ETFs had the same top 10 companies in their holdings: BHP, Commonwealth Bank, CSL, National Australia Bank, Westpac, ANZ, Wesfarmers, Macquarie, Goodman, and Woodside Energy. Financials, materials and healthcare all held similar weightings between the funds.
In regard to product structure, Morgan Stanley said it seeks “liquid, easy to track benchmarks that provide ample diversification”.
“In-kind redemption avoids capital gain tax events at the fund level. Replication methods should be optimal for the sometimes competing aims of minimising transaction costs and tracking error.
“Although A200 and STW have a favourable structure with a high number of holdings, IOZ is preferred with the In-Kind/Cash creation/redemption process,” MSWM explained, with IOZ claiming the top spot for this metric.
Moving on to fees, the firm emphasised its focus on lower fees, tight bid/ask spreads and high trade volumes.
According to MSWM, A200 exhibits a lower management fee than its peers, as well as the lowest total cost of ownership. Morgan Stanley attributed this to the underlying index being lower cost, with a “slightly different” construction methodology.
IOZ, meanwhile, ranked second highest due to a higher average daily traded value as well as the highest level of turnover and implied liquidity.
Looking at risk metrics, MSWM said it likes ETFs that minimise volatility and downside risks while maximising risk-adjusted return measures.
Acknowledging that each of the funds had very similar risk metrics, Morgan Stanley confirmed that A200 ranked higher due to having a higher Sharpe and Sortino Ratio – which measures a portfolio’s rate of return based on the risk it assumed and the rate of return based on the downside risk it assumed, respectively – over both one and three years.
