Home / Sector / ETFs / Is the iShares Core S&P/ASX 200 ETF (IOZ) a good long-term investment?
Here's my view on the IOZ ETF.
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Tristan Harrison is one of the longest-serving writers at The Motley Fool Australia. Tristan has been contributing ASX news and stock analysis articles since 2016. His aim is to help Australians learn about great ASX shares, with a focus on ASX dividend shares and undervalued ASX growth shares. He holds an advanced diploma from the Association of Accounting Technicians and is enrolled in the Chartered Institute Management Accountant (CIMA) qualification program.
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The iShares Core S&P/ASX 200 ETF (ASX: IOZ) is a very popular exchange-traded fund (ETF) for Aussies – it has net assets of more than $5.3 billion. In this article, I'm going to look at whether it's a good long-term investment.
As the name suggests, it allows Aussies to track the S&P/ASX 200 Index (ASX: XJO), which is an index of 200 of the largest ASX businesses.
Why it could be a good long-term investment
There are two main reasons to like the IOZ ETF.
Firstly, it has an incredibly low management fee of just 0.05%, which is almost nothing. There are numerous Australian fund managers that charge an annual management of 1% or more.
The lower the fees, the less money is taken out of an investor's fund balance. That means more wealth compounding over the long term.
Second, it gives us diversification because we can buy a basket with 200 different names in just one investment. We're talking about names like BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), CSL Ltd (ASX: CSL), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ), Wesfarmers Ltd (ASX: WES), Macquarie Group Ltd (ASX: MQG), Woodside Energy Group Ltd (ASX: WDS), Goodman Group (ASX: GMG), Rio Tinto Ltd (ASX: RIO) and Telstra Group Ltd (ASX: TLS).
Over the long term, the success and failures of the businesses in the ASX 200 will see them move up and down the holdings list in terms of allocation sizing.
I'd also point out it normally has a good dividend yield because of the underlying companies.
According to Blackrock, the 12-month trailing dividend yield was 3.65% at the end of March 2024, with franking credits being a bonus on top of that.
Is the IOZ ETF the best choice?
It's not a bad investment option, the investment returns to March 2024 were an average of 9.1% over the prior five years.
Is it the best option in Australia?
Well, there are similar options that offer slightly different investments.
The Vanguard Australian Shares Index ETF (ASX: VAS) tracks the S&P/ASX 300 Index (ASX: XKO), which gives investors (a relatively small) exposure to an extra 100 businesses.
BetaShares Australia 200 ETF (ASX: A200) tracks 200 businesses – just like the IOZ ETF – but it has a cheaper annual fee of 0.04%, though it's almost identical.
I'd also suggest that there are other, internationally-focused ETFs that could generate stronger longer-term returns than the IOZ ETF such as the Blackrock offering iShares S&P 500 ETF (ASX: IVV). The IVV ETF has returned an average of 16.7% per annum over the past five years thanks to its investments in large US tech companies. Large US shares tend to have international earnings and more growth avenues than ASX blue chips.
The IOZ ETF is a solid option for ASX shares, but I'd make sure to allocate a good amount to the global share market for diversification and potentially more capital growth.
