Young & Invested: Is your ETF really worth the price you’re paying?
We’ve devised a new metric to reveal whether your ETF is competitively priced.
Welcome to my column, Young & Invested, where I discuss personal finance and investing for Gen Z and Millennials.
This column aims to be a resource for young investors navigating an ever changing financial, political and social landscape as they try to build wealth. Tune in every Thursday for the latest edition.
Edition 63
There are plenty of ways to evaluate an ETF for your portfolio. Once you know your goals and investment strategy, the next step is narrowing down the investment universe. You can do this by looking at fund providers, risk metrics, exposures, or a personal favourite I recently heard – just buying whatever went up 100% this year (please don’t).
Most of these approaches aren’t particularly helpful in isolation. A more sensible starting point is to compare an ETF with others trying to do the same thing. As investors, we want to know whether the fund is delivering the exposure it promises and whether it’s doing so at a competitive price.
A framework I often rely on is the Morningstar Medalist Rating. This year, we’ve implemented changes across the methodology including the introduction of a new Price Score that I think will be particularly helpful for investors making the comparisons.
What the Medalist Rating actually is
The Morningstar Medalist Rating is a forward‑looking assessment of how likely a fund is to outperform its category benchmark over a full market cycle. Funds can receive Gold, Silver, Bronze, Neutral, or Negative ratings. Gold, Silver and Bronze mean that we expect the fund to outperform its category benchmark. Neutral means the odds are roughly balanced and Negative means we believe the fund has meaningful obstacles to delivering competitive long‑term returns.
Historically, the Medalist Rating has been built on the three core pillars of people, process and parent. Those pillars reflect fundamental drivers of long‑term performance. Our analysts assess each pillar and combine those assessments with the fund’s price and its likelihood of outperforming its category benchmark. The result is the overall Medalist Rating you see on the fund’s report page.
Unpacking the price score
As of April 2026, our methodology has been simplified with one of the key enhancements being the introduction of a price score. This is a continuous score from -2.5 (most expensive) to +2.5 (cheapest) showing in no uncertain terms whether a fund’s fee structure is working in your favour or eroding your long-term returns, as it feeds into our overall rating.
Instead of looking at fees in isolation, the score evaluates a fund relative to its category peers. As investors, we don’t pay fees in a vacuum, we pay them for a specific type of exposure. A fee that’s reasonable in one category can be excessive in another. Thus, the price score is a good way to make that comparison explicit.
How it’s calculated
Before going into the mechanics, I recognise the numbers aren’t exactly intuitive. If you’re wondering why the scale runs from -2.5 and +2.5, the short answer is because it does. The longer one is that it provides enough room to separate the genuinely cheap funds from those simply less expensive than the worst option. Below is the formula used to derive the score:
Price Score = 5 × (1 – fee percentile rank) – 2.5
What this does in practical terms is convert a fund’s fee percentile into a number between -2.5 and +2.5. Funds with lower fees than most peers land toward the top of the range and vice versa. Because the score is continuous (rather than bucketed), it captures even minor differences in cost. This is important for long-term investors, as slightly more expensive today can compound over a decade.
The score is then weighted into the overall fund rating. The implication of the price score is that low-cost funds will have their ratings boosted whilst the opposite will occur for the more expensive.
The main takeaway is that the price score carries more weight for passive funds (40%) than active funds (30%). This difference reflects the fact that in index‑tracking strategies, cost is a large driver of outcomes. On the other hand, active funds may justify fees through additional sources of potential value e.g. manager skill/security selection (in theory), so cost plays a slightly smaller, though still significant role.
If a fund ranks in the 72nd percentile for fees, it receives a raw price score of -1.10, meaning it’s on the expensive side of its peer group. For an active fund that reduces the overall Medalist Rating by 0.33 points vs 0.44 points for a passive fund.
Using Vanguard Australian Shares ETF VAS as an example, its fee is 0.07%, placing it in the cheapest quintile of the Australia Large Blend category. The median fee in that category is 0.93%, so VAS is positioned firmly at the lower cost end with a price score of 2.37. If we’re looking at this as an investor, it helps us understand that VAS’ fee structure is not just low in a general sense, but it also has a structural advantage relative to the funds it competes with.
Fees are easy to overlook when we’re comparing products with different strategies, benchmarks or different marketing budgets, especially given the abundance of choice on the ASX. In that sense, I think the prices score is helpful to force the comparison back into context.
Concluding thoughts
Several studies, including our own, have repeatedly demonstrated that fees are a reliable predictor of the future success of a fund. But there is no universal approach to evaluating them. Everyone investor’s criteria will be different.
The biggest challenge I think investors are facing today isn’t figuring out what’s considered cheap vs expensive, it’s finding a way to deal with the sheer volume of ETFs on offer. If you don’t have a clear sense of direction, it’s easy to fall into an infinite rabbit hole of research. That is why it’s important to begin by clearly defining parameters for what you do and don’t want in an investment.
As a long-term investor, keeping costs low is a priority as I’m aware of how fees can compound over time. My informal rule is that I usually don’t spare a glance at products that have a total cost ratio above 0.25% p.a. I acknowledge that this number is somewhat arbitrary and I’m sure there are quality options above that line, but the point isn’t to find some sort of scientifically derived threshold. Establishing a simple cost screen narrows the field enough so that I can focus my attention where it matters.
The Medalist Price Score can be a useful tool in this process. Instead of relying on arbitrary cut‑offs or gut feel, the score can quickly illustrate how a fund’s fee compares within its own category. It can provide a structured way of assessing whether the fund you’re looking at is competitive on price for the exposure you’re after.
