ETF Barclay's iShare ETF

Hi folks,

I was wondering if anyone here has experience in investing in ETFs (Exchange Traded funds) such as Barclay's iShare ? One of their key selling points seem to be that they charge lower management fees as compared to managed funds. Is this true ?

Also I notice that very few margin lenders have included Barclay's iShare in their approved list of equities. Is this because this is new to the Australian market or for some other reason ?

Finally does anyone know why ETFs are not as popular in Australia as they appear to be in the global markets ?

cheers
ozzy_madman

 

Yes, as low as 0.09%, often around 0.2 to 0.3%.
I suggest you do a search for 'ETF' in the Search box in the green bar at the top of the page.

These are only a few weeks in Australia, so that's an obvious reason. Also, since these trade like shares and are not like traditional managed funds, they will probably appear on share lists, rather than funds lists. Margin lenders often need prodding to get something put on the list, and they might have to assess the market depth etc before they are willing to put then on the list.

We are simply slow to catch on here in regard to index tracking funds. Remember also that our ASX index is dominated by a few companies (BHP + four banks account for 32% of the ASX200), so you can hold these shares alone and follow the index to first order. And being Aussies, we like to have the share in the company, that gives us more power at the barbie than a piece of an index!

 

I stuck the banks money into 3 ETF last week SFY, STW and IEM. Ishares now partly being covered by my margin lender will keep my busy for a fair while even if I did slip in some LEI Friday, just need to remember when buying to check the market depth as at market orders can sit unfilled.

 

It appears that iShare index funds are in USD. Is that right, that an investor is also taking on USD/AUD currency risk when investing in iShare ETFs?

 

Of course there's currency risk when you're buying international companies whether directly or by proxy eg ishares etf.

You'll have to specifically look for a hedged fund if you want the currency risk minimised.

 

I get that, but it seems every index is exposed to specifically USD currency risk.

 

Yes they use USD for dividends so there is conversion from the local $ to US and then into AUD. After 6 days I am 4.24% up on IEM so any dividend is a minor issue for me presently.

 

Anyone got any feedback on which lenders are putting a decent LVR on these ishares?
ANZ seems to have the highest LVRs and the most available on the acceptable securities list as far as I can tell...

 

St George are doing 60% on 8 of them.

Tailcat

 

From the looks of the ANZ margin loan they have a "diversified portfolio" option, as far as I gather meaning you get a higher LVR for holdings > 25% of your total portfolio, generally an extra 5%, which means LVR as high as 80% for a couple of them. A nice LVR in these volatile times!

 

Just had a look, ANZ have updated their securities list and have all the iShares on them (Suncorp only has a few) at pretty decent LVRs. This is becoming a very nice alternative to an indexed managed fund portfolio.

 

Has anybody considered buying ETFs such as ishares that are actually traded on the NYSE or other international indexes? I have looked at ishares offered on NYSE and there are many, many more to choose from, some very cheap only $30 or $40 US. I know Commsec International allow you to buy them direct but has anyone actually done or is doing this at the moment?

Question I have is:- would it be better buying them internationally rather than domestically as they are more popular overseas therefore more buyers and sellers and more potential cap growth.

Currency risk can be mitigated by keeping everything in $US until exchange rate is favourable and Commsec offer a margin loan on Intl shares through Pershing, so this is not a problem either.

Anything else I should be thinking about?

My main aims are to invest in OS markets that are not easily accessible here eg Germany (not whole of Europe), Global resources and global infrastructure mainly.

 

Yes, I am investing in ETFs in the USA.
I use Think Or Swim for buying and selling. $5 per order.
You can get up to 3 orders a month for free with Think or Swim.

Most of the ETF I buy seem to be on the AMEX exchange. But that's no big deal.

There are hundreds of ETFs in the USA. And they cover everything almost. Currencies, every country almost, every industry almost, bonds and commodities.

Plus, most of them have options if you want to protect your investments.

 

Thanks guys for your replies! I really don't know much about ETFs LICs or that sort of thing - hence my questions.

Sim, I have no idea about how ETFs work actually and you are much more likely to be correct than I am. Are you saying that the "price" is derived from the value of the index and not buyer sentiment? I was wondering because the same ETF are different prices on the ASX and NYSE even taking into account currency differences. I guess that answers my question also on what the difference is between ETFs and LICs - I thought they were much the same.

Stig, thanks for that info. I will check out Think or Swim. Look like a much cheaper alternative than Commsec.

Actually double thanks! Just checked out the list of ETFs available on AMEX and wow! Like being a kid in a lolly shop. As someone who is interested in having some exposure to soft commodities but who dosn't have the capital or aggressiveness to trade futures these funds may be just what I have been looking for.

 

If you want to know exactly what and how each EFT is made up, you have to read the prospectus.

Usually EFTs are a basket of stocks. Sometimes they are weighted heavily towards the largest stock to replicate an index. Sometimes they have equal weighting. There are no secrets about how an ETF is made up. Make sure you always do you homework and read up on the expenses if you intend to keep them for the long haul.

There are many ETFs that do the same thing too. Make sure you go with the most liquid and with thte lowest fees. When I have a choice, I also look for the ETF with the most liquid options.

US examples.
Index ETF
NDX (NASDAQ) QQQQ
DJX (Dow Jones Ind 30) DIA
RUT (Russell 2000) IWM
SPX (S&P500) SPY

You can learn so much from the websites. I find these the best.
Select Sector SPDRs
iShares ETFs for U.S. Investors - Exchange Traded Funds
PowerShares.com - Home

The Power Shares and sectorspdr have some awesome tools in there. IShares is so so.

 

Don't underestimate the currency risk. I held a large portfolio of US stocks with Ameritrade whilst living in the UK.
Following the Iraq debacle I decided that I didn't want anything to do with the US any longer and sold up the whole portfolio at 1.7 to the pound. Shortly after the US dollar started to slide and is now at 2 to the pound. So thankfully in hindsight I made the correct decision.
When a currency starts to move it can do so fairly quickly and then stabilise at a different rate for years.
Also I recall having to submit a Foreign Tax withholding form each year(WP11 if I recall correctly) to prevent the fed reserve withhold 30% tax on your profits.
The US dollar is weak at the moment, but frankly the way that China, India etc are progressing I can only see it going in one direction over the longterm.

 

"Don't underestimate the currency risk. I held a large portfolio of US stocks with Ameritrade whilst living in the UK.


http://www.invested.com.au/7/us-fund-distribution-1065/

 

Thanks Stig for those websites. I had already looked at the ishares US site for info on their products including complete holdings, but did not know about spdrs or powershares.

In regards to currency risk, I do understand it to a degree and am willing to expose myself to it if necessary to gain exposure to funds that are not available on the ASX. I intend to hold for the long term and all distributions/income will be kept in USD and not automatically converted to AUD thus hopefully I will avoid any unfavourable exchange rates. Who knows, in the meantime some of the ETFs I am looking at might (hopefully) be listed on the ASX. As a worst case scenario I can hedge the currency risk via a short USD position.

As an aside, is the currency risk any different with purchasing ETFs from US exchanges than investing in an International fund over here eg Navra US fund or any of the China/Asia funds offered by well known fund managers?

 

Maybe. The risk is obviously still there, however some funds will hedge internally (as opposed to you having to do it yourself).