Most Australian investors have a large exposure to financial companies and banks which can make a basic ASX 200 ETF look unappealing. Could the BetaShares Australian EX-20 Portfolio Diversifier ETF (ASX: EX20) be the solution?
What Are ETFs?
Exchange-traded funds or ETFs are investment funds that are listed on a stock exchange and provide exposure to a range of shares or assets with one purchase.
This Rask Finance video explains ETFs:
BetaShares EX-20 ETF
The BetaShares Australian EX-20 Portfolio Diversifier ETF takes a unique approach to the idea of investing in the largest companies on the ASX.
The EX-20 ETF takes the ASX 200 and excludes the 20 largest companies. To see the impact, you can compare it to the BetaShares Australia 200 ETF (ASX: A200).
The A200 ETF has 31.9% of its funds exposed to financials, 17.4% to materials, and 9.5% to healthcare. Excluding the top 20 companies changes this dramatically. Financials drop out of the top three, making EX-20’s top three exposures materials (16.1%), industrials (13.4%) and real estate (12.6%).
While A200’s largest holdings are companies like Commonwealth Bank of Australia (ASX: CBA) and BHP Group (ASX: BHP), EX-20’s largest holdings are Unibail-Rodamco-Westfield (ASX: URW), Aristocrat Leisure (ASX: ALL) and Coles Group Limited (ASX: COL).
Over the last 12 months, A200 has returned 9.05% compared to only 6.22% for the EX-20 ETF.
Both of these ETF’s are relatively new but looking at the five-year performance of each of the indices they track, the index that excludes the top 20 companies has returned 11.94% per year compared to 7.94% per year for the full ASX 200.
On top of that, the EX-20 ETF has a 12-month distribution yield of 4.8%, compared to only 3.4% for the A200 ETF.
Fees And Risks
The EX-20 ETF charges a management fee of 0.25% per year, significantly higher than the 0.07% charged by A200.
While the indices suggest EX-20 would have performed better over a five-year period, these results can’t be properly used to compare the two ETFs. Excluding the top 20 companies also excludes some of Australia’s best companies such as CSL Limited (ASX: CSL) – often the largest companies are so large because they offer stable and reliable performance.
My Take
I completely understand the desire to reduce exposure to the big four banks and other financial institutions, and the EX-20 ETF provides a viable option for doing just that. I was surprised to learn that the dividend yield is actually higher without the banks, given that banks are often treated as the best dividend investments in Australia.
The EX-20 ETF is definitely worth another look, but the higher management fee could be one drawback that keeps me from investing.
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Disclosure: At the time of writing, Max owns shares in the BetaShares Australia 200 ETF (ASX: A200).