Top 10 most consistent ASX ETFs for your portfolio

We all value consistency, particularly in our portfolios. Perhaps there’s a stock you own which doesn’t produce the absolute best performance compared to other stocks, but the performance it does produce is very consistent.

When it comes to investing, there’s value in knowing what to expect.

This highlights the importance of assessing performance in terms of the volatility an investor typically must endure to achieve it. This is the benchmark for all professional investment managers, that is, the concept of assessing all securities within their investing universe on the basis of each security’s risk-adjusted return.

For professional investors, return without a consideration of risk is irrelevant. With this in mind, let’s investigate which might be the most consistent ASX ETFs for your portfolio.

In each category, I have considered performance on a 5-year basis as I feel this is sufficiently long enough to give investors a good idea how a fund has performed within a range of market conditions, but not too long to eliminate from consideration funds which haven’t been around long enough to qualify (remember, ETFs are a relatively new phenomenon on the ASX).

The most consistent Australian shares ETFs

The top 10 performing Australian shares-themed ETFs over the last five years are shown in the table above. Their performance over one, three, and five years is shown, along with the monthly volatility in returns over five years.

The benefit of investigating risk-adjusted returns is immediately apparent. If 5-year returns alone is the basis of comparison, the top three performing Australian share ETFs for consideration are AASF, GEAR, and VHY. However, when we consider monthly volatilities, GEAR stands out from the pack with its 10% monthly volatility compared to 4.2% for AASF and 4.7% for VHY (note geared funds use leverage to increase returns, but this may also increase risk).

If you’re the type of investor who doesn’t care about the month-to-month fluctuations in the performance of the holdings in your portfolio, this extra information is irrelevant. But if you’re the type of investor who’s looking for stability, then the trade-off of 1.8% p.a. in return over 5-years by selecting VHY versus GEAR might be worth it.

Either way, AASF still looks the goods in this contest on a risk-adjusted return basis.

The most consistent global shares ETFs

The top 10 performing global shares-themed ETFs over the last five years are shown in the table above. The first thing you’ll notice is their performance is far superior to their Australian shares-themed counterparts – nearly double in some cases.

Now that you’re also a connoisseur of risk-adjusted returns, no doubt you’ve also noticed these superior returns weren’t achieved with substantially higher risk. This highlights perhaps the main benefit of ETFs, that is, the ability they afford regular Australian investors to diversify their portfolios away from the customary big-four banks and three resource companies!

I bet a few of you are lamenting not being invested in the NDQ over the last five years with its eye-watering 22.9% return (55.5% in the last year) and at only 5.1% monthly volatility. This seems a reasonable trade-off compared to the Aussie shares-themed chart topper AASF’s 13.2% return and 4.2% monthly volatility.

Second place LPDG also deserves a special mention for its 20.3% 5-year return (and notable 60% 1-year return) and 6.2% monthly volatility, as does ETHI for its 19.1% 5-year return and very low 4.2% monthly volatility.

Finally, note again the geared fund, GGUS, took out the gong for greatest volatility. One could argue that just as with GEAR, the extra risk was not adequately compensated with extra return.

The most consistent Cash & Fixed Interest ETFs

Firstly, as a market nerd, I must acknowledge the sheer brilliance of the Betashares gang for selecting QPON as the ticker for their Australian Bank Senior Floating Rate Bond ETF!

The levity of QPON is even more apparent when you consider just how boring cash and bonds typically are. But that’s not a bad thing. The relative certainty afforded by cash and bonds is exactly what many risk-averse investors seek.

These securities are the bread and butter of major pension funds, government agencies looking to park excess reserves, as well as millions of retirees who wish to sleep soundly at night knowing their capital is for the most part, completely safe.

I say ‘for the most part’ because an investment in a cash or bond security is only as sound as the company or government you’re handing over your money to. In most cases, however, these risks can be largely eliminated by engaging only with issuers of the highest credit rating, along with sound diversification.

Enter ASX cash and fixed interest ETFs. Again, investors can use these funds to increase the diversification and stability of the returns of their portfolios just as easily as they would buy or sell shares in BHP Group (ASX: BHP).

The top 10 Cash and Fixed Interest ASX ETFs are shown in the table above*. The difference between the returns of this table and the first two asset class tables is stark. The returns over five years here are a fraction of what’s been observed so far. Why?

The returns on cash and bonds depend largely on the risk-free rate, that is the rate at which large financial institutions can borrow from central banks. Up until the last two-years, central banks had been running near-zero risk free rates to get their economies back on track after the pandemic. More recently, rates have risen, and so too have the returns on cash and fixed interest (as a result, note the superior one year performances).

There’s another difference in the table above compared to the first two: 2 instances of negative returns. “Hold up”, you say. “I thought you told me cash and bonds were supposed to deliver reliable returns!?”

This is true for cash. For bonds, there is the possibility of a negative return if a bond isn’t held to maturity, but rather it’s traded after a period where market yields have risen. 2022 and 2023 saw unprecedented volatility in bond markets as central banks ‘lifted off’ with rate increases, and this clearly impacted the returns of CRED and VACF.

The final important observation from the cash and bonds performance table is the most important one, it’s the reason why investors look to cash and bonds in the first place – the last column, volatility. Importantly for investors looking for stability, monthly return volatility in this table is around one-half to one-third of that observed in the prior two tables.

Whether the risk-adjusted returns here look attractive depends on the eye of the beholder, but XARO tops the list with a 3.3% 5-year return and 1.4% monthly volatility, and QPON is next with a 2.5% 5-year return and a very low 0.4% monthly volatility.

One expects some volatility with bond investing, but little-to-zero volatility on cash. This is the case with the two cash ETFs on the list, AAA and ISEC which each delivered 0% monthly volatility over 5-years. Their 1.7% and 1.6% respective 5-year returns may appear mediocre, but more recently higher rates have boosted their respective 1-year returns to 4.2% and 4.3%. This is likely far more attractive for capital stability-minded investors.

The most consistent Multi-Asset, Property, and Commodities ETFs

In terms of the best of the rest, PMGOLD is the standout with a 10.9% 5-year return and a commendable low 3.9% monthly volatility. Not surprisingly, the very similar in characteristics GOLD isn’t far behind with a 10.7% 5-year return and 3.9% monthly volatility.

They fall away from there, but these asset classes offer significant diversification benefits to investors given their pattern of returns is usually loosely or negatively correlated with returns from shares.

How you can find the most consistent ASX ETFs

Before I go, I want to alert you to a fantastic tool we have on the Livewire website, our Find Funds tab. In it you can search for a range of managed funds, ETFs, listed investment companies (LICs), and listed investment trusts (LITs).

Once you’ve selected a category, it’s then simple to search for an individual fund in the “Search Fund Name” box, or tailor your search by selecting the Asset Classes you’re interested in. You can then sort your results by a range of performance periods, as well as view minimum investment and fees data, along with several performance data reporting formats.

I’m confident you will agree the Find Funds page is an invaluable resource to assist you with your investing research.

*This table previously included the Schroder Real Return (Managed Fund) (ASX: GROW) but was updated on 28/3/24 as GROW is a multi-asset fund with significant equity allocations and not a pure fixed income fund.