What Are the Best Performing ETFs to Watch in Australia 2024?

Views 1415Dec 2, 2024

In Australia's vibrant investment landscape, filled with opportunities, Exchange Traded Funds (ETFs) have emerged as a popular tool for investors seeking a balanced mix of diversification, accessibility, and potential returns. Identifying which ETFs are performing well and suitable for you is crucial for investors aiming to optimize their portfolios with ETFs amidst the financial trends of 2024.

This comprehensive guide examines the ETFs available for investment in Australia, spotlighting the best ETFs in Australia for 2024, aiming to provide actionable insights that can guide investors in making informed decisions.

Background of investing in ETFs in Australia

ETFs have become a cornerstone of modern investment portfolios, particularly for investors seeking the ETFs that are both performing well and suitable for their portfolio in Australia. ETFs offer the advantage of diversification, allowing access to a broad spectrum of assets through a single tradable security.

What are ETFs?

ETFs are an efficient means of investing in a diverse range of assets. They are funds that track indices, sectors, commodities, or specific themes and can be traded on stock exchanges just like individual stocks.

ETF Types

Currently, ETFs are categorised into several main types: Equity ETFs, Bond ETFs, Commodity ETFs and Currency ETFs. Each type of ETF has its own unique investment characteristics and risk-return profiles, which are suitable for different types of investors and investment strategies.

1. Equity ETFs

Index ETFs: These track a broad market index, such as the BetaShares Australia 200 ETF.
Sector ETFs: They focus on specific sectors, including technology, healthcare, finance, and energy.
Thematic ETFs: Primarily tracks specific economic, social or technological trends. For example, sustainability ETFs.

2. Bond ETFs: These track the performance of the bond market, encompassing government bonds, corporate bonds, and high yield bonds.

3. Commodity ETFs: They invest in physical commodities or commodity futures contracts, like oil, gold, copper, or coffee.

4. Currency ETFs: These track a single currency or a basket of currencies, such as the US Dollar Index (DXY).

Australia's ETF Market

Australia's ETF market has seen robust growth in recent years, capturing the attention of global investors with its rapidly expanding asset base, diverse product offerings, and innovative edge. The market includes a range of traditional equity and bond index-tracking ETFs, as well as unique thematic investments in areas such as clean energy, technology, real estate, gold, and even cryptocurrencies, showcasing the market's strong innovation and keen awareness of emerging trends.

The Australian Securities Exchange (ASX) has been pivotal in this development, offering a platform for trading ETFs with the same ease as stocks, characterized by low costs and high market transparency, appealing to investors who are mindful of expenses. Under a rigorous regulatory framework, the Australian Securities and Investments Commission (ASIC) safeguards the market's health and investor rights, while also fostering investor education to improve public understanding and proficiency in applying ETF investment strategies.

Consequently, the Australian ETF market is an ideal destination for investors seeking diversified, cost-effective, and accessible investment avenues. It also serves as a significant indicator of the global ETF industry's development.

Why Australian Investors Choose ETFs？

Cost-Effective Diversification: ETFs are favored by investors for their ability to provide access to a wide array of markets and asset classes. They enable investors to construct a diversified portfolio with ease, whether it involves local or international stocks, commodities, or bonds. Additionally, ETFs offer the advantage of lower expense ratios compared to other investment options.
Flexibility and Liquidity: Tradable on major exchanges like the Australian Stock Exchange, ETFs offer flexibility. Investors can buy and sell throughout the trading day, allowing for swift reactions to market fluctuations or adjustments in line with evolving investment strategies.
Transparency and Simplicity: With daily disclosures of their holdings, ETFs provide transparency, giving investors a clear view of their investment composition. This straightforward approach is appealing to investors who value knowing the exact makeup of their investments.
Innovation and Choice: The Australian ETF market is dynamic, continuously introducing innovative products that target niche sectors, thematic investments, and ESG criteria. This variety ensures that investors of all types can find an ETF that aligns with their preferences.

Top ETFs for Australian investors to watch

Below is a list of the best ETFs in Australia for 2024. This selection includes both ETFs traded on the ASX and those focused on other regions that are accessible to Australian investors. These funds span a diverse array of sectors, strategies, and themes. The selection was made by considering a variety of factors, including historical performance, expense ratios, asset size, and potential for future growth.

Invesco QQQ Trust, Series 1(QQQ)

The Invesco QQQ Trust, Series 1 (QQQ), tracks the NASDAQ 100 Index and is concentrated in the technology sector. It encompasses a diverse range of companies, from software developers and internet firms to semiconductor manufacturers and IT service providers. Over recent years, QQQ has consistently outperformed many broad market indices. The inherent volatility of growth-focused investing is offset by the robust fundamentals of the companies it holds.

From the last 250 trading days leading up to July 12, 2024, QQQ has seen a significant increase of 30.65%, highlighting its growth-oriented strength. Its substantial asset base, valued at approximately US$269.37 billion, ensures ample liquidity and trading flexibility. QQQ's impressive track record demonstrates its capacity to harness the upward movement of innovative, high-growth companies. With its comprehensive coverage of the technology sector, a strong historical performance, and an expense ratio of just 0.2%, QQQ is the preferred choice for investors seeking long-term growth opportunities.

Vanguard S&P 500 ETF (VOO)

The Vanguard S&P 500 ETF (VOO) offers investors a window into the performance of the top 500 U.S. corporations that make up the prestigious Standard & Poor's 500 Index. VOO provides a comprehensive representation of key industries driving the U.S. market. With an expense ratio as low as 0.02%, VOO enables investors to keep more of their returns, and its asset size of approximately $454.77 billion underscores its popularity and the confidence investors have in it.

From the last 250 trading days up to July 12, 2024, VOO has surged by an impressive 25.63%, showcasing its recent strong performance. It has also continued to deliver robust returns over the one and three-year time horizons. Although moderately volatile due to its diversified portfolio of 500 U.S. companies across a broad spectrum of industries, VOO is a compelling choice for long-term portfolios. Its comprehensive market representation, cost-effective structure, and the inherent stability of large-cap equity investing make it an attractive option for investors seeking long-term growth.

SPDR Gold Shares ETF (GLD)

The SPDR Gold Shares ETF (GLD) closely mirrors the price of gold, rooted in the precious metals sector and serving as a hedge against market volatility and inflation. It employs a passive strategy to track the price of gold bullion, holding physical gold reserves. With assets totaling $65.238 billion, GLD reflects its significant market presence and the trust of its investors.

Over the last 250 trading days leading up to July 12, 2024, GLD has achieved a commendable 37.12% increase, underscoring its strong appeal as a safe-haven asset. It distinguishes itself with an expense ratio of just 0.40%, which minimizes the cost burden for investors. GLD has consistently delivered solid returns over the past year and three years, proving its effectiveness as a hedge against economic uncertainty and currency devaluation. Moreover, it is an essential component of asset diversification.

Energy Select Sector SPDR Fund (XLE)

The Energy Select Sector SPDR Fund (XLE) is an energy sector-focused ETF that spans a wide array of segments, from traditional oil and gas exploration and production to the development of new energy sources. With an asset base of $39.596 billion, XLE utilizes a passive management strategy and boasts an expense ratio of just 0.03%.

In the 250 trading days leading up to July 12, 2024, XLE has recorded a gain of 9.97%, showcasing the recent recovery momentum within the energy sector. XLE is reflective of the volatility and cyclical patterns inherent in the energy market, which has seen a transition from industry lows to a steady rebound over recent years.

While XLE may exhibit greater volatility compared to some other sector ETFs—due to the sensitivity of energy prices to the global economy, policy changes, and supply-demand dynamics—it also presents potentially high yield opportunities for investors seeking value-added investments.

Direxion Daily Semiconductor Bull 3X Shares ETF(SOXL)

The Direxion Daily Semiconductor Bull 3X Shares ETF (SOXL) is a leveraged financial instrument that invests in companies engaged in the design, manufacturing, and distribution of semiconductors and related products. This ETF offers investors amplified exposure to the high-growth potential of the semiconductor industry, with its daily performance being three times that of the PHLX Semiconductor Sector Index.

With an asset base of $10.983 billion and a management expense ratio of 0.75%, SOXL has seen a substantial gain of 128.96% over the past 250 trading days, up to July 12, 2024. This performance reflects the semiconductor industry's tremendous growth potential, as well as the amplified returns that leveraged ETFs can provide.

Historical performance has shown the volatile nature of leveraged products, presenting significant opportunities in bull markets and considerable risks during downturns. The volatility of SOXL is a direct result of its leverage, attracting aggressive traders while also reminding investors to exercise caution in the market.

BetaShares NASDAQ 100 ETF(NDQ)

The BetaShares NASDAQ 100 ETF (NDQ) mirrors the NASDAQ 100 Index, offering a diversified portfolio among the 100 largest non-financial companies listed on Nasdaq, with a focus on the technology, telecommunications, retail, and biotechnology sectors. With an expense ratio of 0.38% and assets totaling A$5.447 billion, NDQ has achieved a 30.36% increase over the last 250 trading days, leading up to July 12, 2024. This performance reflects the robust performance of the NASDAQ 100 Index and the substantial growth potential of the constituent companies.

Available to Australian investors through the ASX, NDQ provides exposure to a diversified basket of leading US technology firms. Its competitive fee structure, combined with strong historical performance and significant capital appreciation potential, positions NDQ as an attractive option for investors seeking growth-oriented investment strategies.

Vanguard MSCI Index International Shares ETF（VGS）

The Vanguard MSCI Index International Shares ETF (VGS) offers extensive coverage of the international equity markets, tracking the MSCI World ex-Australia Index (with net dividends reinvested) in Australian dollars. This index comprises shares of large and mid-cap companies listed globally, excluding those from Australia. VGS boasts assets of A$36.963 billion and features a low management expense ratio of 0.18%.

Over the last 250 trading days up to July 12, 2024, VGS has seen a robust increase of 22.40%, showcasing its strong performance in global equity markets. By investing in stocks across various regions and sectors, VGS diversifies the risk associated with any single market or industry, thereby reducing overall portfolio volatility.

This ETF ensures that investors benefit from cost efficiencies that can enhance potential returns, while also maintaining a broad representation of developed international markets, making it an appealing choice for those with a global investment outlook.

Vanguard Australian Property Securities Index ETF (VAP)

The Vanguard Australian Property Securities Index ETF (VAP) concentrates on the Australian domestic property investment market, tracking the S&P/ASX 300 A-REIT Index. This index encompasses Australian-listed real estate investment trusts (A-REITs) that own and operate a diverse array of commercial properties, including shopping centers, office buildings, industrial facilities, and logistics centers. With an asset size of A$6.106 billion and a management expense ratio of 0.23%, VAP ensures both liquidity and cost efficiency.

In the last 250 trading days leading up to July 12, 2024, VAP has achieved a commendable 27.08% return, underscoring the robust growth of the Australian property market during this cycle. As an investment vehicle in the property sector, VAP is often regarded as a relatively stable long-term investment with potentially lower volatility than some broader stock market indices. However, it remains subject to influences such as interest rate fluctuations, the economic climate, and market cycles.

BetaShares Global Sustainability Leaders ETF(ETHI)

The BetaShares Global Sustainability Leaders ETF (ETHI) is a leading ETF in the global sustainability sector, tracking the NASDAQ Future Global Sustainability Leaders Index. It invests in companies that are setting the standard for sustainability across a broad spectrum of industries. With assets of A$2.988 billion, ETHI maintains a management expense ratio of 0.49%, reflecting its commitment to controlling costs and ensuring the efficient use of investor capital in pursuit of sustainable investments.

Over the last 250 trading days up to July 12, 2024, ETHI has risen by 22.30%, demonstrating the growing appeal of sustainable investments and their potential for capital appreciation. ETHI's dedication to sustainability, its historical performance, and substantial asset base make it a compelling choice for investors who wish to incorporate sustainable investments into their strategies.

Vanguard Australian Shares High Yield ETF (VHY)

The Vanguard Australian Shares High Yield ETF (VHY) tracks the FTSE Australia High Dividend Yield Index, focusing on companies with the potential to deliver high dividend yields. With assets of A$5.349 billion, VHY maintains a management expense ratio of 0.25%. Over the last 250 trading days up to July 12, 2024, VHY has risen by 14.38%, demonstrating its strength in delivering stable returns.

As an ETF focused on high-dividend stocks, VHY is likely to exhibit a lower degree of volatility compared to the market average, since high-dividend stocks are typically issued by more mature, financially sound companies. During times of increased market uncertainty, high-dividend stocks may serve as a safe haven due to their relatively stable dividend payout characteristics.

How to invest in the best ETFs in Australia?

Trading the best ETFs in Australia requires a certain strategic approach that combines market awareness, platform proficiency and a clear understanding of investment objectives. Here are some trading steps to help investors trade ETFs.

Understanding ETF trading

Investing in the best ETF in Australia requires a detailed understanding of how it works in the financial markets. They are usually set up by fund management companies to track the performance of a particular index, asset class, sector or investment strategy. They are listed and traded on stock exchanges with their own ticker symbols, just like ordinary shares. In addition to trading in the secondary market, ETFs allow authorised participants (usually large financial institutions) to conduct the creation and redemption process in the primary market. This mechanism helps keep the ETF market price closely linked to its underlying net asset value (NAV).

Choose a broker

Broker Comparison: Compare online brokers based on fees (trading commissions, account maintenance), platform features, research tools and customer support. Choose a reliable and efficient online brokerage platform with direct access to the Australian Stock Exchange (ASX) and various ETFs.
Demo Accounts: Many brokers offer demo accounts, which can be used to familiarise yourself with the platform's operation, improve your trading skills and practice your trading strategies.

Research and selection

Market analysis: Start by researching market trends and identifying sectors that are expected to perform well. Consider factors such as economic indicators, sector growth forecasts and global events that may affect the ETF market.
Performance indicators: Look for ETFs with a history of outperformance. review their returns, expense ratios and tracking errors over the past year. Use online resources and financial news to filter out the best performing ETFs in Australia.
Thematic vs index: Decide whether you prefer a thematic ETF that aligns with specific trends, such as technology, environment, society and governance, or an index ETF that tracks a broader index, such as the A200.

Trading strategies

Dollar cost averaging (DCA): Investors reduce market timing risk by investing a fixed amount of money in their chosen ETF on a regular basis, regardless of its current price. This strategy is more effective in volatile markets and allows investors to accumulate at different price points, potentially reducing the average cost over time.
Sector rotation: Sector rotation is the process of switching investments between ETFs in different sectors based on market conditions and economic cycles. By identifying sectors that are expected to outperform, investors can adjust their portfolios to take advantage of these trends, thereby optimising their portfolios.
ETF options trading: For the skilled investor, ETF options offer additional layers of strategy. Whether hedging, speculating or generating income, options capitalise on the price movement of the underlying ETF. This approach offers the potential for higher returns while increasing risk.
Short selling: Short selling involves borrowing an ETF and selling it in the market in anticipation that the price will fall so that the investor can buy back the ETF at a lower price and return it to the borrower, earning the difference in price. This strategy carries a high degree of risk and can be used when the market is depressed or when investors believe a particular ETF is overvalued.

Monitoring and rebalancing

Periodic review: Focus on factors such as capital flows, expense ratios and changes in underlying asset allocation. Pay close attention to regulatory changes, economic indicators and market sentiment that may affect the ETF's trajectory.
Rebalancing: Rebalance its portfolio on a regular basis to ensure that the investments are in line with its risk tolerance and investment objectives. Monitor the ongoing performance of the invested ETFs to decide whether to hold, add to or divest from them.

Final thoughts on best performing ETFs in Australia

In summary, Australia's ETF market is experiencing robust growth and presents a diverse array of products, offering investors a plethora of investment opportunities. Identifying the top ETFs in Australia necessitates a blend of thorough research, astute observation of market dynamics, and a steadfast commitment to your investment objectives. When entering the realm of ETF investing, as a prudent investor, consider whether your choice aligns with your thematic focus, index tracking, or strategic asset allocation. Ensure that your ETF portfolios are congruent with your risk tolerance, investment horizon, and targeted returns.

Financial markets are in a perpetual state of flux, and investment strategies must evolve in tandem. Regularly review your portfolios, evaluate the performance of your chosen ETFs, and make informed adjustments grounded in market insights to maintain investment flexibility. The selection of the best ETFs is not static. It is a dynamic element of a well-crafted investment plan. By adopting a comprehensive approach that integrates meticulous research, robust trading platforms, and a disciplined mindset, you can discern the most suitable ETF for your investment needs within the vast array available in Australia.