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STW

Discussion in 'Exchange Traded Funds (ETF)' started by GG, 26th Jun, 2010.

  1. GG

    GG Active Member

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    OK, this has bugged me for a while. I'm just hoping someone here is smart enough to explain it to me.

    Apparently STW offers index exposure to the S&P/ASX 200 Accumulation Index

    People owning STW may or may not reinvest the distributions in more STW shares.

    Why shouldn't STW therefore be compared to the capitalization index. i.e the thing that you can easily look up - xjo I think.

    Why is the Accumulation index chosen when some people might want to just spend the monies from the distributions?
    And it make comparison more difficult because it seems that the ASX200 Accumulation index data isn't freely available.

    I just have this bad feeling that there's something I've misunderstood.
    Any explanations in simple language if possible :)
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I think you are confusing the performance of the index with the constituency of the index somewhat.

    STW merely seeks to hold the same shares with the same weightings that the ASX200 index contains.

    There's no real need to compare performance of STW against the index (unless you are seeking to validate some form of efficiency measure) ... instead, you should use STW as a proxy for comparing other funds or investments against the index.

    As you pointed out, holding STW but not reinvesting dividends will give you mostly the same performance as the ASX200 index, while holding STW and reinvesting dividends will give you mostly the same performance as the ASX200 accumulation index.

    I use this on my Compare Funds website to compare the accumulation performance of other funds to the index using realistic data ... you can't actually buy an index, but you can buy STW - so in many ways I think it's actually a better benchmark than the index itself.

    If the investment you are considering can't outperform STW, then why not just hold STW?

    For comparison purposes, the industry standard methodology assumes that all distributions are reinvested (accumulation), which is the only fair way of comparing funds which aim to pay out higher levels of income versus those which aim more for capital growth than income.
     
  3. GG

    GG Active Member

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    21st Oct, 2009
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    Location:
    Sydney, NSW
    So that's why the comparison is made with the Accumulation Index - thanks for explaining that, Sim!