ETF ETFs - time?

Discussion in 'Shares & Funds' started by mumeco, 10th Oct, 2008.

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  1. Nodrog

    Nodrog Well-Known Member

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    Thanks for the update.

    My most recent buys in the SMSF have been ARG and STW coincidentally.

    Cheers - Gordon
     
  2. try anything once

    try anything once Well-Known Member

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    Just curious whether you have quantified whether the DFA value/small cap tilt has outperformed STW and other equivalent untilted indexes of your portfolio during the past years grumpy bear?
     
  3. dkmc

    dkmc Well-Known Member

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    No theres no point doing it over one year as it doesnt mean much.
    Cash beat virtually all asset classes. Ie the return is more related to asset allocation when we are talking index, or close to index funds.

    The value and small cap tilt has shown outperformance over 7 years, significantly

    see the below links for some interesting graphs.
    Graphs

    graph info
     
  4. ashes

    ashes Well-Known Member

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    The argument is that this performance comes with more risk. ie small companies are more risky then large companies. So you may not be outperforming when you adjust for risk.

    Still the performance of those dimensions funds seems impressive at first glance.
     
  5. dkmc

    dkmc Well-Known Member

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    I agree the small company premium is due to higher risk
    The the value premium based on book to market ratios - some argue that its due to being underpriced with an inefficient market, some say its due to higher risk
    Obviously Im not advocating these individually

    Its part of a portfolio where most of the risk is determined by your asset allocation. You determine your risk level - and try and get the optimal return for that risk level.

    These are just indexes with a slight tilt to value and small cap

    ps you actually make a very good point, and I dont know how to answer it fully without doing extra research. Ive forgotten a lot of the theory.

    pps - value stocks are actually less volatile, and carry less risk.
     
  6. ashes

    ashes Well-Known Member

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  7. Ems

    Ems Well-Known Member

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    I'm thinking of setting up a monthly contribution into a fund.....about $500 a month and was wondering what the difference is between an index and managed fund? Would STW be a good option if I'm making regular contributions?
     
  8. Simon Hampel

    Simon Hampel Founder Staff Member

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    An index fund is just a passively managed fund which doesn't seek to pick stocks or time the market - it just aims to replicate the index it has chosen to track. Because it doesn't require "experts" to manage, the costs are very low.

    Most actively managed funds operate based on some methodology which the fund managers believe will outperform the index over a period of time. You pay for their "expertise" and hence costs are generally higher than index funds.

    An Exchange Traded Fund (ETF) is basically like a managed fund (usually passive, index tracking) - but rather than buying units directly from the fund manager, you buy and sell units on the stock exchange just like shares.

    While the ongoing costs of holding an ETF are generally much lower than an actively managed fund (and typically slightly lower than an index tracking managed fund) - the purchase costs are typically higher because you have to pay brokerage.

    For this reason, ETFs are generally not that cost effective for investing small amounts (eg regular contributions), since you have to pay high brokerage for every transaction.

    For managed funds (both index funds and actively managed funds), the entry cost is a fixed percentage of the amount being invested, so even if only investing a small amount, you pay the same percentage as if you were investing a large amount. Many fund managers also offer simple regular contributions mechanisms (such as direct debit) which make it much easier than buying units in an ETF on the ASX.

    I should do up a spreadsheet to show the comparison of costs.