Discussion in 'Exchange Traded Funds (ETF)' started by mumeco, 10th Oct, 2008.
Is STW good for growth? Or is it more an income holding? or both?
STW is an index tracking ETF, which means it gives you the average return of the market (being the ASX200). From my experience, dividends typically amount to about 4% of the overall return with the rest being growth.
Think of it like buying some of BHP, WOW, TLS, NAB, ANZ, WBC, CBA, etc etc and getting both the growth and the dividends as any normal shareholder would ... that's basically how it works - except you have approximately 200 shares and only one set of statements to worry about!
As to whether you should be buying STW now ... well - I'm not ready to call the bottom of the market quite yet, but either way, the market is arguably "cheap" at these prices.
There has been quite a lot of discussion about the pros and cons of ETFs vs Index funds recently.
However, I wonder if it would be good to include Listed Investment Companies such as Argo in the discussion. Pros & cons vs the ETFs or the Index funds?
Also, at present, the ETFs like STW and SLF seem to be trading at a bit of a premium compared to the Net Tangible Assets. Thoughts? Are they still a reasonable buy because the total price per share is lower than it was, or are you paying more than you should despite the price?
What gives you that impression ? They are supposed to track very closely. I suspect any discrepancy would be a result of the huge volatility we've seen lately and is likely to settle down in due course (although I haven't researched the price/NTA specifically of late - so I'm just theorising here)
Just got the following from profile for STW off etrade
Income Company Market Sector
Dividend 8.5% 7.1% 7.4%
Tax adj 5.1% 5.1% 5.3%
Stability 99.0% 93.9% 98.2%
not a bad dividend although only a quarter of it is franked.
Yes, the dividend and franking paid out by STW is the sum of the dividends paid out by the underlying shares held by the ETF. Not all shares in the ASX200 pay fully franked dividends. Not a lot you can do about that.
The yield is also based on historic dividend payments from those companies and the current (low) price of the market - so it's not an accurate long term predictor of yield from the market right now.
This table shows you the approximate level of income payout each year over the past 8 years:
Yearly Performance: SPDR S&P/ASX 200 Exchange Traded Fund (STW)
ETFs vs LICs
There was a simple article in the Financial Review Investor some months back that compared the ETFs/LICs/Index funds.
Low-cost stock option - moneymanager.com.au
written by David Potts aka Pottsie...
What do others think about LICs?
I think I'll side with Buffett about this:
"No less than the world's most famous and successful investor, Warren Buffett, who is also an old-fashioned kind of guy, prefers ordinary old index funds to the new-fangled ETFs on account of the fact there's less temptation to trade them."
Just to be clear, this is a psychological reasoning, not a technical one!
... and is certainly valid from the perspective that trying to "add value" to an index fund kind of defeats the purpose
It looks like STW currently has a dividend yield of 9.5% !
This looks like a fantastic opportunity to drop a load of money on STW
Given that borrowing costs are 8% or so .
In the next few weeks the market may drop a bit further providing 10%+ yields - and interest rates may drop again next month
I'll look to use my line of credit - mainly into STW because of the diversification and dividends.
Could be a huge opportunity.............
Im not willing to bet on one or two stocks
After a few years with dividend growth your dividends could be 15%
I am watching BHP closely, but I think many have been burnt lately with stock picking.
I'm seriously thinking of doing the same thing. But whats the easiest way of purchasing STW. Is there a PDS or is it just like purchasing a share, so you need to set up a trading account?
It's got an ASX code so you can purchase it from a stockbroker.
PS This is general information, before making investment decisions research those investments.
Do you think that company dividends across the 200 stocks held by STW will NOT fall in the next year or two ?
Don't forget that yields (like P/E ratios) are lagging indicators - they use OLD data (earnings/dividends) in the calculations.
Not saying don't invest - just saying go in with your eyes open!
"Also, at present, the ETFs like STW and SLF seem to be trading at a bit of a premium compared to the Net Tangible Assets"
My understanding is that the price is kept at NTA by arbitratgers, ie if STW today has a premium to NTA, then traders will sell STW and buy the underlying shares.
Yep I agree. I do think dividends will probably drop off a bit / not greatly but no one really knows. I also note that the franking is only 25%
Im also looking at ARG - an LIC which has a yield of 4.9% with 100% franking and a strong dividend growth history.
Im not investing yet. But I think its starting to swing in our favour.
I am quite interested in how STW can give a dividend of 9.5%. How does it work? Is it just based on the dividends paid to STW from the stock they hold? How does it make a profit?
Also, what do people think regarding something like ARG vs STW?
thanks for bringing that up, DKMC?
STW is an index fund - basically a subset of ASX200 list. Goal of those managing it is to mimick the ASX200 index. Funds are always 99.9% invested - no real investments management decisions are being made - ie passively managed. The yield/franking credit % are a function of which shares are actually held to mimick the index.
ARG is a LIC which has managers making decisions. For example - at the moment I believe ARG has a large % of its assets in cash. It is actively managed - albeit with a quite conservative & income bias.
So it depends on whether you are happy to buy the index or would like to try to beat the index.
ARG has a bit of a focus on dividend growth, and tax effectiveness
This may be advantageous long term
Just curious if you are still sticking to your indexing strategy? I recall a great discussion started by you some time ago.
Cheers - Gordon
Sure am, still sticking to the strategy with one of my portfolios.
I bought at the worst possible time approx 1 yr ago. Wish I entered the market over time rather than all at once.
Some of the overseas unhedged funds have been offset a little by the decline in the $A
I have LOC available and am just starting to invest more in my personal portfolio, which is not my pure index portfolio - into more ARG and STW.
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