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Index funds

Discussion in 'Exchange Traded Funds (ETF)' started by wakamole, 12th Jun, 2007.

  1. wakamole

    wakamole Member

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    Anyone have any advice on index funds in Aus?
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    What kind of advice are you looking for ?
     
  3. arandomperson

    arandomperson Member

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    No advice at all - but I like the SPDR Index ETFs, though only been buying them since the start of the year. Low fees, no frills.
     
  4. Glebe

    Glebe Well-Known Member

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  5. arandomperson

    arandomperson Member

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    Last edited by a moderator: 13th Jun, 2007
  6. wakamole

    wakamole Member

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    small cap value funds?

    Thanks all

    mostly I was wondering about gearing into index funds and regular, automated purchases - just fishing for opinions.

    I was reading on fool.com - a very U.S.-centric site - that they love them instead of managed funds

    Can you set up an account to have an automatic withdrawl from your bank to these funds every monh?

    On a different subject does anyone know of any "small cap" "value" funds?
     
  7. arandomperson

    arandomperson Member

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    Vanguard Investments - Vanguard Investments Australia Ltd for index fund saving plans?
    Contango MicroCap Limited small cap etf?
    Hunter Hall Investment Management value funds?

    Disclaimer: I have no idea, but I do own products or shares of the above. I do also have an automatic direct debit scheme set up for another fund manager, Australian Ethical Investment - Home
     
  8. jscott

    jscott Well-Known Member

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    Have a look at DFA Australia Limited: Home - there's allot reading material on there. Thay aren't exactly index investors, more asset-class investors. In fact they call it Equilibrium Investing now.

    There funds are based on the research result from Ken French and Eugene Fama. Check out how well they have performed against the indexes. They pride themselves on tax-effectiveness and low cost.

    Minimum investment is $500k though, except you can get in thru a few cheap wrap accounts - the fees of the wrap account and the dimensional fund are still cheap compared to most other funds. I'm not connected with them at all but I do invest in their value funds.

    If you want a really good book on this subject then get John Bogles: Common Sense on Mutual Funds.

    Jason.
     
  9. wakamole

    wakamole Member

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    wrap accounts

    Thanks for all the input everyone.

    Forgive my ignorance but what is a wrap account - can anyone open one? How does it work - I will also search this forum
     
  10. jscott

    jscott Well-Known Member

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    From Travis Morien's investment FAQ: "Master Trusts and Wrap Accounts are administrative services that invest your money in a vareity of wholesale managed funds.
    Once you put your money into a master trust or wrap account, you will incur an extra layer of fees for the reporting service, however they are to a large extent offset by the much lower MERs of the funds available through the master trust or wrap because often the funds are wholesale funds." There is masses of more info on : Travis Morien's Investment FAQ - Master trusts and wrap accounts
     
  11. Rod_WA

    Rod_WA Well-Known Member

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    Wrap account = waste of money.

    But that's just my opinion.

    Sorry, perhaps I should explain a little:

    Say your wrap account adds another 1%. Then at $100k invested, you're paying $1000 a year for someone to send you a pretty report. Oh well, I suppose that's not that bad because it makes tax time easier...

    But why invest into a managed fund? Answer is obviously for growth, eg you hope for 10 to 12% pa over time. Then your $100k will be $200k in 6 to 7 years... and then you'll be paying $2000 a year for the same piece of paper... in 12-14 years you'll be paying $4000, and by the time 20 years comes around you'll be up for $8000.

    And that's just the 1% bit. Remember that it's on top of the other MERs, eg 1.5% becomes 2.5%. In other words, in 20-25 years, if your fund has done "very nicely, thank you," then you'll be paying $20k a year in fees.

    The SPDR index funds (see above) have a MER of 0.29%. That is, you get index performance minus 0.29%, almost exactly. Which means that when the index has gone 10-12% pa for 20 years, your fee is $2300 pa.

    $20,000 fee pa vs $2,300 fee pa. I know which one I'd rather pay.
     
  12. jscott

    jscott Well-Known Member

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    Rod_WA, based on your opinion, ALL managed funds must be a waste of money.

    Some (and I mean *only* some) wraps actually let an investor get into funds cheaper than if they approached the fund direct as a retail investor. That is where wrap accounts can be beneficial.
    Personally, I'd rather invest in direct shares, but a while back, in another life ;) I used a wrap account to get into some wholesale funds and overall paid less than investing straight into the equivalent retail fund.

    So, if you're the type of investor that wants to invest in managed funds, then I'd definitely reseach wraps more. And even after that I'd use a fee-only planner who'd rebates you all the commissions as well.

    Jason.


     
  13. Rod_WA

    Rod_WA Well-Known Member

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    Not quite what I meant. As far as I'm concerned, all managed funds that offer active "investing" and churn stocks, and attempt to beat an index, eg ASX300 Accumulation or MSCI Global, are a waste of money. The average fund underperforms the index (due to fees), and low cost index funds (eg MER <0.3%) are a better long term option.

    Specialist fund managers, who offer particular styles, or access to markets that are not available through low cost index funds, certainly have their place with me.

    Agreed.
     
  14. Rod_WA

    Rod_WA Well-Known Member

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    For some reason my browser won't let me edit my last post. I meant to say:
    ...The average fund underperforms the index (due to fees and tax on realised gains)...
    (I hate churn).
     
  15. jscott

    jscott Well-Known Member

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    Yes, I totally agree Rod_wa.
     
  16. arandomperson

    arandomperson Member

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    As my portfolio is presently not that large, to get the a level of diversity (and hence, I hope, risk mitigation) similar to what I have with my approx. 8 etf/lic/mf investments I would be paying a lot more than the MER in terms of brokerage fees and management overhead (my time). Also as several of the funds deal in overseas securities (Korea, Japan, Norway, etc...) I am saved the overhead of maintaining a brokerage account in that country, dealing with the language and currency, tax issues, etc...
    Unfortunately there is no exchange traded equivalent of the SPDR funds that deals in international index funds (though there are some good Vanguard ones).
    Also I have an interest in green and ethical investments, hence the managers of those funds should be earning their fees looking at investment parameters beyond the purely financial.
    I think once I hit a certain threshhold I will expand to more direct shares, as its an economy of scale issue.
     
  17. dkmc

    dkmc Well-Known Member

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