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Discussion in 'Exchange Traded Funds (ETF)' started by jobeki111, 4th Dec, 2008.

  1. jobeki111

    jobeki111 New Member

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    Hi
    I am looking to invest for the first time and put $10000 into an index fund. I was intending on investing in STW but on reading the PDS under transaction fees they state:
    "The following fees apply to each application and redemption:
    SPDR 50 Fund - $1,250
    SPDR 200 Fund - $5,000
    SPDR LPF - $700
    The Transaction Fee is payable by an applicant at the time of application and by a Unitholder at the time of
    redemption.
    The Transaction Fee is borne by the Stockbroker. Unitholders should consult their Stockbroker for a complete
    understanding of how the Stockbroker allocates the Transaction Fee amongst Unitholders"
    Can anyone clarify this for me, from my reading on ETF's they are low cost options but I don't understand how the stockbroker would not just pass the fee on to the buyer (unitholder?). Any help would be greatly appreciated. Thanks
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    If you read the information on page 2 of the PDS you will note that the PDS is NOT intended for personal investors - it is intended for institutions and other "large" investors who are able to directly purchase units in the underlying fund.

    The fees you mention are associated with the minimum application/redemption of 100,000 units in the fund (that's nearly $5m per transaction).

    The brokerage costs you pay to your share broker more than adequately cover their own buy/sell costs!
     
  3. jobeki111

    jobeki111 New Member

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    thanks so much Sim... much appreciated! (i must've missed that bit :) )
     
  4. benbegg

    benbegg Active Member

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    With interest rates on a LOC around 5% and the STW returning around 9%, how confident do forum members feel that I would remain ahead in terms of the distributions covering the interest costs? I have read that company dividends are expected to fall but with such a large diverse level of exposure in STW, and the large holdings being in the Banks and BHP I would have thought I would be pretty safe. I mean I am aware that in terms of capital growth this might be -ve in the short term but one must consider the long term view as an investor.
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Historically (by my calculations), STW has shown the following income returns over the past 8 years:

    2008-09 2.1% (to date)
    2007-08 5.6%
    2006-07 7.0%
    2005-06 5.9%
    2004-05 6.9%
    2003-04 4.4%
    2002-03 2.9% (-5% growth)
    2001-02 3.0% (-4% growth)

    This is based on a simple calculation of total return minus growth to give income, so it's not necessarily completely accurate - but it's at least in the ballpark.

    Yields may be high now, but I suspect they will fall as income (and hence distribution) levels fall. It will be a matter of how much the largest shares in the index will be forced to drop their dividend by.

    Figures taken from this page: Yearly Performance: SPDR S&P/ASX 200 Exchange Traded Fund (STW)
     
  6. benbegg

    benbegg Active Member

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    So how does this fund compare with the Colonial First State Australian Share Index and the Vanguard Fund? The CFS fund seems to have a pretty low management fee if you opt for the wholesale fund, but I have read elsewhere that it seems to trade a lot..is this normal practice for an index fund to trade a lot?
     
  7. Chris C

    Chris C Well-Known Member

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    I'm personally of the opinion that the ASX 200 has quite a bit further to fall over the coming weeks and months, and I have been waiting on the sidelines to also invest into STW, but at this stage I find it highly unlike that I will move into the market in the next 3 - 6 months, and to be completely honest I won't be surprised if this bear market runs all the way through 2009.
     
  8. benbegg

    benbegg Active Member

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    Yes we are seeing the 1/2 yearly results now which are a mixture of good and bad. I think once we have seen the final results (when the bigger dividends are traditionally paid!) and size up the companies which are really looking bad then I think the market can look forward to better times. I tend to agree that we have a bit to go in the downward trend..with 2800 being a popular spot!!
     
  9. AsxBroker

    AsxBroker Well-Known Member

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    Hi BenBegg,

    I have noticed that as well, Vanguard is a good choice as it has low turnover/distributions which is great for long term holding and better taxation due to less churning. I think Vanguard's retail MER is about 0.75%.

    Cheers,

    Dan

    PS This is general information. Before making an investment decision speak to your FPA registered Financial Planner.
     
  10. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Looks like the CFS fund tracks the index pretty closely - see attached chart.

    However the stats I've calculated show much higher distribution levels - which does tend to indicate a higher churn rate for some reason (I can't explain this - it's an index fund, why the churn ?) - Yearly Performance: Colonial First State (FirstChoice) Index Aust Share (FSF0233AU)

    This of course means that the CFS fund is less tax effective - those charts only show pre-tax returns ... after tax, you'd be better off with STW if my calculations are correct.

    MER is 1.1% for the CFS fund, which is a bit higher than Vanguard and quite a bit higher than STW.

    Unfortunately I don't have a reliable source of data for Vanguard (yet!) so I can't do a direct return comparison between this fund and the others.
     

    Attached Files:

  11. ashwright

    ashwright Well-Known Member

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    Maybe this because the fund is more popular? With more people entering and leaving during the year.
    One interesting fact I have heard is that with all managed funds (trusts actually), when the fund has to sell assets to pay out a person who is leaving the fund, the remaining members are hit with the capital gain tax (not the person leaving, as they get out before the end of the year when the tax is paid.)
     
  12. AsxBroker

    AsxBroker Well-Known Member

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    Hi AshWright,

    This is usually the case for Industry Super funds which leaves a sour taste in the remaining investors as they don't revalue funds on a daily basis but an interim monthly crediting process.

    At http://www.colonialfirststate.com.au/Prospects/FS1127.pdf the fund can have between 0-5% in cash. One would assume that CFS would know how many applications and redemptions they would have on an ongoing basis as a float.

    Also Vanguard seems more popular as their factsheet http://www.vanguard.com.au/plugins/pdf/viasf.pdf says they have $282m as at 31st Jan 2009 and Colonial's fund has $35m as at 31st Dec 2008. This is purely in Retail Investment service, not super, pension or wholesale.

    One could say that Vanguard is about 8 times more popular (by fum).

    Cheers,

    Dan

    PS This is general information. Before making an investment decision speak to your FPA registered Financial Planner.
     
  13. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Your suggestion that a popular fund with high inflows and outflows of capital may lead to greater distributed income (realised capital gains) is a reasonable explanation. However, the fact is that Vanguard's Index Australian Shares fund is much larger and yet still sees lower distributed income (close to that of STW). Perhaps it's the ease with which CFS allows people to move money between funds which leads to greater capital churn ?

    Either way, I suspect it's more of a structural thing with CFS somehow - but I'm not exactly sure what.

    By the way - just thought I'd mention that the Vanguard Index Australian Shares Fund tracks the ASX300, not the ASX200 - in case anyone hadn't picked that up.

    ... as for people selling units not paying capital gains - that's not actually the case - any unrealised capital gains are already reflected in the unit price that the redeemer gets paid out at - thus they pay capital gains based on the increase in unit price achieved since purchase.

    Any realised capital gain for the fund selling shares to be able to make that payment - is shared amongst all remaining unitholders, and thus is typically negligible (unless for some reason there is a significantly high turnover of capital in-and-out of the fund).
     
  14. ashwright

    ashwright Well-Known Member

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    I was thinking about the capital gains the trust has to distribute, at the end of year, rather then the capital gains an individual investor has to pay for their increase in unit price. Even if the economic effect of the capital gain has been paid for by the person leaving, the capital gain still has to be distributed to the remaining members. Either way, I think this point was understood correctly.

    This is all speculation, though, I do wonder what the real reason is.

    Ash.
     
  15. Waimate01

    Waimate01 Well-Known Member

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    I have STW, Vanguard, and used to have CFS Aus Share Index Fund. I ended up closing down all my CFS investments because I was so sick & tired of getting clobbered at the end of the year. Few things suck as much as paying cash money for tax on a paper gain.

    I don't understand why the CFS index fund churns more than other index funds, but it surely does. Avoid!