Hello and welcome to the forums.
Update Manager works with ESX Server hosts, virtual machines, and virtual appliances running on ESX Server hosts. As you mentioned, you will need to download the ISO or ZIP and do the upgrade that way.
Good Luck!
Brian Atkinson | vExpert | VMTN Moderator | Author of "VCP5-DCV VMware Certified Professional-Data Center Virtualization on vSphere 5.5 Study Guide: VCP-550" | @vmroyale | http://vmroyale.com