ETF returns have two components: price growth (the ETF unit price rising) and distributions (income paid to unitholders — dividends, interest, rental income). Understanding how to calculate total ETF returns — and the role of franking credits — helps Australian investors compare ETFs accurately and set realistic expectations.
Total Return vs Price Return
Most ETF price charts show price return only — the change in unit price. Total return includes distributions reinvested, which can significantly exceed price return alone.
Example — VAS (Vanguard Australian Shares ETF): Over periods where VAS’s price rose 40%, the total return (including distributions of ~3–4% per year) may have been 70–80%. For income-focused ETFs, the distribution component is even more significant.
Always check the total return — not just the price change — when evaluating ETF performance.
How to Calculate ETF Total Return
Simple single-period calculation (no distributions reinvested)
$$\text{Total return} = \frac{(P_{\text{end}} - P_{\text{start}}) + D}{P_{\text{start}}}$$
Where:
- $P_{\text{end}}$ = Ending unit price
- $P_{\text{start}}$ = Starting unit price
- $D$ = Total distributions received per unit during the period
Example: VAS
- Start price: $90.00
- End price: $100.00
- Distributions received: $3.50 per unit
$$\text{Total return} = \frac{($100 - $90) + $3.50}{$90} = \frac{$13.50}{$90} = 15.0%$$
With distributions reinvested (DRP — Distribution Reinvestment Plan)
When distributions are reinvested, you purchase additional units at the ex-distribution price. This compounds your unit count over time — increasing the power of future distributions.
Calculating total return with reinvested distributions manually is complex for multiple periods. The Total Return Index (TRI) is the standard measure — most ETF providers and data platforms (Morningstar, Market Index) publish TRI data for major ASX ETFs.
Distribution Yield Calculation
$$\text{Distribution yield} = \frac{\text{Annual distributions per unit}}{\text{Current unit price}} \times 100$$
Example — VHY (Vanguard Australian Shares High Yield ETF):
- Annual distributions: $3.20/unit
- Current price: $72.00
- Distribution yield: $3.20 ÷ $72.00 = 4.44%
Gross yield (with franking credits)
Australian share ETFs (VAS, VHY, IOZ) pay franked distributions. The gross yield accounts for the value of franking credits:
$$\text{Gross yield} = \text{Distribution yield} \times \frac{1}{1 - \text{corporate tax rate}} = \text{Distribution yield} \times \frac{1}{0.70}$$
For a fully franked distribution with 30% franking:
$$\text{Gross yield} = 4.44% \times \frac{1}{0.70} = 6.34%$$
This gross yield reflects the full pre-tax value of the distributions — relevant for investors whose marginal tax rate is below 30% (who receive cash refunds).
Key ASX ETF Historical Returns (Approximate)
These are historical figures — not a guide to future returns.
| ETF | Asset class | Approx. 10-yr total return p.a.* | Approx. distribution yield |
|---|---|---|---|
| VAS | Australian shares | 9–10% | 3.5–4.5% |
| VGS | Global shares (AUD, unhedged) | 12–14% | 1.5–2.5% |
| VDHG | Diversified high growth | 9–11% | 2–3% |
| VAF | Australian bonds | 3–5% | 3–4% |
| VHY | Australian high yield | 8–10% | 4–6% |
| NDQ | Nasdaq 100 (AUD) | 15–18% | <1% |
| DHHF | Diversified all-growth | 10–12% | 1–2% |
*Approximate — varies by measurement period. Past performance is not a reliable indicator of future performance.
Comparing ETF Returns: What to Look For
Use the same time periods: Comparing a 1-year return to a 10-year return is meaningless. Always compare over identical periods.
Check Total Return, not price return: Many sites display price return only. Look for “Total Return” or “NAV Total Return” in fund data.
Account for fees: The MER is deducted from the fund’s assets — it reduces your return. The published return figures for ETFs are typically after-MER.
Check for index tracking error: The difference between the ETF’s return and its benchmark index return. Low tracking error = the ETF is efficiently delivering its promised exposure.
Currency matters for global ETFs: VGS returns in AUD will differ from the USD performance of MSCI World due to AUD/USD fluctuations. Hedged ETFs (VGAD) remove this effect.
Franking Credits — Extra Value for Australian Share ETF Holders
Australian companies pay tax at the 30% corporate rate. When they pass on dividends, they attach franking credits representing the tax already paid. For ETF investors:
- Investors with <30% marginal rate: Receive a cash refund of excess franking credits (including if in pension-phase super)
- Investors with >30% marginal rate: The franking credit partially offsets tax on the dividend — not a full refund but reduces net tax
- Super in pension phase: 0% earnings tax means franking credits are fully refunded — significantly boosting net return
For retirees with super in pension phase, fully franked Australian share ETF distributions can be a powerful tax-efficient income source.
Related Calculators
- Dividend Income Calculator Australia
- Brokerage Fee Calculator Australia
- Investment Calculator Australia
- Investment Calculators hub
Frequently Asked Questions
How do I calculate the return on an ASX ETF? Total return = [(End price − Start price) + Distributions] ÷ Start price. For accurate multi-year returns with reinvested distributions, use the Total Return Index (TRI) data published by ETF providers (Vanguard, Betashares, iShares) or on financial data platforms like Morningstar.
What is a good ETF return in Australia? Over the long term, broad Australian share ETFs (VAS, IOZ) have returned approximately 9–10% per annum total return (including distributions). Global share ETFs (VGS) have returned 12–14% per annum in recent 10-year periods (partly driven by strong US tech sector performance). These are historical figures — future returns may differ significantly.
Do ETF distributions include franking credits? Yes — ETFs holding Australian shares pass through franking credits attached to the underlying dividends. The distribution statement shows the cash paid and the associated franking credits. You claim these in your tax return and may receive a refund if your marginal tax rate is below 30%.
This article provides general financial information only. Past ETF performance is not a reliable indicator of future returns. For advice tailored to your situation, speak with a licensed financial adviser through the ASIC financial advisers register or MoneySmart.