Top 5 ETFs of 2023

Bryce: [00:00:26] Welcome back to another episode of Get Started Investing, a podcast where we answer the most common money and investing questions from our community. If you're joining us for the very first time, a massive welcome. We do strongly recommend that you scroll up and start at episode one. Now, while we are licensed, we're not aware of your financial circumstances, so any information on this show is for education and entertainment purposes. Any advice is general? And with that said, my name is Bryce. And as always, I'm joined by my equity buddy Ren. 

Alec: [00:00:55] How are you, Bryce? I'm good. Excited for this episode. We're answering a question that is on everyone's lips all the time. What are the best performing investment options? 

Bryce: [00:01:05] Yes, that's it all the time. We ask that every day. And today, Ren, we are looking at the best ETFs of 2023.

Alec: [00:01:15] That's right. 

Bryce: [00:01:15] From a performance point of view. 

Alec: [00:01:19] What other point of view would you look at that. 

Bryce: [00:01:21] You could say what's the best from a cost point of view? You could say, what's the best 

Alec: [00:01:26] You could look at most inflows. So we're looking at like percentage return this year. But in terms of what were the most popular ETFs? Do you want to have a guess? 

Bryce: [00:01:37] It'll be VAS. 

Alec: [00:01:40] Which is.

Bryce: [00:01:41] Vanguard All australia. 

Alec: [00:01:42] Yeah. Vanguard ASX 200. 

Bryce: [00:01:44] Yeah. It's just going to be the low cost index that the super funds pump cash into. 

Alec: [00:01:51] Yeah, yeah, yeah. So I've just googled it. Vanguard Australian Shares ETF. Number one. Number two iShares Core ASX 200 ETF. Actually, I was surprised by that. But there you go. It's those core low cost ETFs. 

Bryce: [00:02:08] No surprises. 

Alec: [00:02:08] But that's not what we're talking about tonight. We're talking about best percentage performance. Now, before we get into that, a correction from last week. We got an email from Mitch. So thank you for your email. And remember, you can join the conversation and ask your questions at ask@equitymates.com. Mitch pointed out last week I said that when we're talking about superannuation, I said that $27,500 concessional cap was on top of your employer contributions. It's not. It includes your employer contributions. So a good correction there. Mitch, thank you. For people who want to hear more about super, go and listen to that episode. And we've done a series on super in this phase as well. So plenty of information on superannuation, but that's not what we're here to talk about today. Bryce. Let's talk ETFs. 

Bryce: [00:02:54] Before we get stuck into the top five indexes in ETFs. Let's set the context for the performance of some of the indexes that we're going to talk about today. So Ren, ASX 200 here at home, year to date is up 2%. Pretty flat.

Alec: [00:03:08] And the Vanguard Australian Shares ETF is up two and a bit percent, which. 

Bryce: [00:03:13] Is what it should do. The S&P 500 top 500 stocks over in the US is up 18% year to date. And we are recording this on the 16th of November and the equivalent ETF votes, Vanguard total stock. I think. 

Alec: [00:03:28] It's all the US market not the S&P 500 but. 

Bryce: [00:03:31] Yeah is up 22%. 

Alec: [00:03:33] It's driven by the same company. 

Bryce: [00:03:35] Yeah. Then we've got the FTSE 100, which is the UK market. It is down 1% year to date. Interestingly, the FTSE 100 ETF is up 10%. 

Alec: [00:03:45] Here in Australia it is up 10%. Yeah, yeah, yeah. What's going on there? 

Bryce: [00:03:48] Is it currency? 

Alec: [00:03:49] Yeah. Yeah. So it's not currency hedged so the Aussie dollar got weaker. And so even though the UK index fell because it's priced in pounds, but the ETF that's listed in Australia is priced in dollars. The movement of the Aussie dollar down has actually made the ETF overall return. 

Bryce: [00:04:10] And then the, I guess all encompassing ETF that a lot of people are familiar with, which is VDHG, it's up 8% year to date. And then there's the Betashares diversified high growth ETF. It is up 11% year to date. The reason we've put both of those in is, as we said, it's the ETF that a lot of people go to for access to multi assets and a number of different markets. 

Alec: [00:04:33] Yeah, if you want a portfolio in one ETF, the most popular choice is Vanguard, diversified high growth. So I think that sets the saying, you know Aussie 2%, America 18%, UK down 1%. It diversified multi-asset strategy up sort of 8 to 11%. That's the sort of numbers we're talking about this year. My first takeaway from that is it's been a pretty good year in the stock market relative to the broader economy because in a world of inflation, interest rates, cost of living crisis, business is getting squeezed. The stock market has done okay. And it's a real reminder why timing the market is so hard. Because if you were going to try and time the market, you wouldn't have invested because of all these reasons to be worried. Yeah. Throw in a war in Ukraine. Throw in a war in Gaza, throw in, you know, so many reasons that it wouldn't feel like a good time to invest. But yeah, anyway, that's not what we're here to talk about. We're here talking about the top five ETFs, much like the Oscars, separate, you know, comedy and drama because there are different categories trying to do different things. We're going to split core index ETFs and thematic ETFs because whilst they're all ETFs, they are very different products and they do very different things. And it's not an apples to apples comparison. So let's talk about core index ETFs to begin with. Number five, you mentioned it earlier, the Vanguard U.S. total market share index. That's up 22% year to date.

Bryce: [00:06:09] We'll play it coming in at number five. Can't complain with that return. 

Alec: [00:06:13] Let's stay in America for number four. The iShares S&P 500 ETF IVV, pays up 23%.

Bryce: [00:06:20] So the major difference here between 4 and 5 is that the Vanguard US total market is much more than the 500 stocks listed, if people are wondering. 

Alec: [00:06:29] Yeah, honestly, there's not a lot of difference in terms of the performance and. Yeah. 

Bryce: [00:06:33] But in terms of what you're buying there.

Alec: [00:06:34] Yeah, yeah, yeah. 

Bryce: [00:06:36] Then coming in number three, you've got the iShares International Equities ETF, iShares Global 100 ETF. Now I O O the ticker and it's up 26%. 

Alec: [00:06:47] Yeah. So it's the hundred. It's not the hundreds. The largest companies there's an index methodology, but it's like 100 of the biggest blue chip multinational companies. 26%. Not complaining about that. Coming in at number two, the Betashares Japan ETF - Currency hedged. So it takes out the movement of the Aussie dollar compared to the yen. That is up 35% year to date. If you had Japan in your core portfolio, you would be happy. As someone who has an Asia ex-Japan ETF in their core portfolio. I've missed out on that recession.

Bryce: [00:07:25] Yes. And then coming in at number one is the Betashares Nasdaq 100 ETF, the top 100 listed tech stocks on the Nasdaq. It is up a whopping 49%. 

Alec: [00:07:37] Yeah, And there's a sister ETF, a Nasdaq 100 currency Hedged ETF. So the non hedged is NDQ, the hedged is HDQ. It's up 42%. 

Bryce: [00:07:52] I bet at the start of the year, in fact, I remember at the start of the year when we sat down to do our bold predictions, no one was predicting that the Nasdaq would be up 50%. 

Alec: [00:08:06] Again, it's just a reminder that the market is hard to predict. And it's such a recency bias because if you think about the situation we were in at the end of 2022, Meta was down 70%, Google was down like 30 or 40%. Like all these tech, all of the smaller tech stocks, Spotify and Shopify were down like 80 or 90%. The tech industry had just been decimated. No one was feeling confident. But then in walks openAI. And ChatGPT in December of last year and then Nvidia starts to rip well that yeah not in the tech non tech but yeah it's just it's been it's been a year. 

Bryce: [00:08:47] So the second takeaway for me here, Ren, is that not only is this a reminder of why you don't try and time the market, but it's also a reminder of why having just a good solid core portfolio is more than enough. Look at the returns you'd be getting without having to chase individual stocks or thematic ETFs. You generating in every instance here above 22% return free. 

Alec: [00:09:11] That's the top five. But even if we go back to, you know, VDHG is up 8% for the year. 8% a year for 30 or 40 years is quite. And then anything you get above it as you try and beat the market and buy individual stocks is just cherry on top.

Bryce: [00:09:26] Yeah, absolutely. 

Alec: [00:09:28] All right. Well, Bryce, let's turn to the thematic ETF, because if the best performing core index ETF is up 49% year to date, well, the big news is that there's a thematic ETF that's up more than 100% year to date. But there is one giant caveat, one giant watch out when it comes to these thematic ETFs that have done well this year. So let's get to that after the break. Welcome back to Get Started Investing. Today we are talking about the best performing ETFs of 2023. We are getting towards the end of the year. We are getting to summer here in Australia. Everyone's winding down. It's time for us to look back on the year that was. We've talked about the core index ETFs with the Betashares, Nasdaq 100 ETFs up 49% year to date. You'd be laughing if you had that in your core portfolio. But Bryce, we're going to talk thematic ETFs because there have been some absolute stars in the thematic space. Now for people new to the show, welcome. When we talk thematic ETFs, what we mean here are ETFs that don't just track the overall market so they don't track the American market. And the top 500 American companies in the S&P 500, or the top 200 Australian companies with the ASX 200. They track a particular investing theme. It might be, you know, cannabis stocks and they buy all the cannabis stocks. Or it might be a particular style of investing. It might be, you know, a value ETF and they just take all the value stocks, stocks that are looking cheap. So there's like an extra layer of thinking or analysis or grouping done. So price thematic ETFs. All right. Well, similar to what we did before with the core index ETFs. Let's go from 5 to 1. Starting at number five one. I know that is very close to your heart. The Betashares Metaverse ETF up 49% year to date. 

Bryce: [00:11:35] Couldn't be further from my heart, Ren, not in my portfolio. And never has been. 

Alec: [00:11:38] Never will be. 

Bryce: [00:11:40] Can't guarantee you that. 

Alec: [00:11:41] Interesting. So the key watch out that we wanted to call out here is a lot of the thematic ETFs that have done really well this year didn't do so well last year. Now, this Metaverse ETF was only created in August 2022, but between August 2022 and December, it fell 22%. So it's up 49% this year. But in a few months it lost almost a quarter of its value last year. If you had held from when it launched in August 2022 to today, it's up 21%. So you're still up. That's good. But, you know, Kate, take that up 49% this year with a grain of salt. 

Bryce: [00:12:24] Yeah. To be fair, the same would apply to the core because 2022 was just generally a shit year, 100%.

Alec: [00:12:33] When we get to number one in the thematic list here, the caveat where illustrating will make a lot more sense. Gotcha. It will. It is the most extreme version of this caveat. 

Bryce: [00:12:46] So coming in at number four is the Betashares Global uranium ETF, up 59% year to date. Global acts also have a uranium ETF that is up 47% year to date. Ren, the interesting thing, though, is they both say that they are a uranium ETF. Betashares is up 59%, uranium is up 47%. 

Alec: [00:13:04] Global X is up 40 something.

Bryce: [00:13:05] Global X is up 47%. So sorry. The difference would be that the underlying companies that they're tracking would be slightly different, which is why there's a different return. 

Alec: [00:13:15] Yeah, neither of them actually invest in. It's not like they're just like uranium commodities. They own your company. Uranium companies? So it's the companies they own and the percentages that they own. 

Bryce: [00:13:27] So then coming in at number three is the Global X Semiconductor ETF ticker is semi. It is home to some of the largest players in semiconductors. And they've had a massive year kicked off the year incredibly strong with India up 59% year to date. Very strong year. No surprises. It's coming in at number three. The caveat for this one is that in 2022, it was down 32%. However, if you had invested at the start of 2022 and held it to today, you would be up just 8%. So whilst it's had a strong 2023 across the two years, it's up 8%. But my goodness, it's had a strong year this year. 

Alec: [00:14:10] Yeah, but not the strongest year. There are two thematic ETFs that have done better. There's also one leveraged ETF that's done better. But in the spirit of separating categories, I think leveraged ETFs are a category in and of themselves. So coming in at number two, it's also a global X ETF. It's the Faang Plus ETF. Now, I joked before that there was an ETF close to your heart, but this one actually is.

Bryce: [00:14:34] It is, yes.

Alec: [00:14:35] Yeah. In your portfolio. 

Bryce: [00:14:36] It's in my portfolio. 

Alec: [00:14:38] So you'd be pretty happy with the 92%. 

Bryce: [00:14:41] Super fund. Actually, it is up 92% year to date. 

Alec: [00:14:45] Yeah. Your 65 year old self is going to be stoked when you get to realise that. 

Bryce: [00:14:49] Thank you, Faang yes. Up 40 at 92%.

Alec: [00:14:52] Now the caveat here is that in 2022 it was down 40%. Not surprising because it owns a lot of the big tech names. So if you bought at the start of 2022 to today, even with it jumping up 92% this year, you'd be up 15%. That's okay. It's just a lot of these thematic ETFs go on really good runs for a certain period of time. But you have to zone out, you know, like the lithium lithium ETFs have had a moment. The cannabis stock ETFs had a moment in like the mid 20 tens. You're just going to put these thematic returns in context that they lost for a while. But don't expect to put them in your bottom drawer and pull it out after 30 years and see 92% compound annual return for 30 years. That gets to number one where this caveat is most clear. The top thematic ETF for 2023. Betashares Crypto innovators ETF. It never let up 104% year to date. Just a crazy return. But this is where the caveat becomes really clear because in 2022 this ETF was down 82%, so down 82% in 2022, up 104% in 2023. If you'd held through that time, you would be down 63% still. Let me just check my maths. 

Bryce: [00:16:22] No, I'm looking at the bitcoin price. Is it because it doesn't? So I think the clear thing here is that this isn't tracking crypto prices. It's tracking companies that are involved in cryptocurrency. Yes. Yes. So just a caveat there, but still down 63% if you'd held for the two years. If you happen to get in the start of this year, up 104%. If you're in Bitcoin from the start of the year, you're up about 140%.

Alec: [00:16:45] Really? 

Bryce: [00:16:46] Yeah. So there you have it, the top five core index ETFs. And there is absolutely nothing wrong with just sticking to that core and putting them in the bottom drawer for very long period of time. And then the top five with the honourable mention of the Oh, no, we didn't do that. Then there's the top five thematic ETFs with slightly different return profiles. Do you have any of the thematics in yours? 

Alec: [00:17:11] Uh, no. 

Bryce: [00:17:13] I've got semi and Fang. There you go.

Alec: [00:17:17] And on that note, let's leave it there. If you have a question that you want us to answer, hit us up at ask@equitymates.com. A reminder that every week accompanying this episode there is an email that goes out to get started investing email. It shares the notes and resources that we've used to help prepare this episode. So if you want to go deeper, if you want to keep learning. Head to equitymates.com/emails and sign up. But Bryce, let's leave it till next week. 

Bryce: [00:17:43] Sounds good, Ren.