Hi
I wonder if someone will enlighten me on two issues:
1. Would it be fair to say that there should not really be any difference in the long term growth/SP (in % terms) of an index ETF such as STW and that of a large LIC which invests in ASX 200 companies such as ARG or AFI.
2. Is there any difference, from a tax perspective, of the dividends from an LIC versus the distributions from STW. Which is more tax efficient? I suspect it is the LIC's but I may be wrong.
Thanks.
Blue Monday
14th-April-2008, 08:55 PM
1. In the long-term, probably not much of a difference. Personally I prefer the ETF because I know exactly what I'm getting in the portfolio.
2. Tax is a bit different for those LICs and the ETF. Both those LICs pay fully franked dividends. STW pays two dividends a year; one is ~25% franked and a smaller one is about ~70% franked. On average you get ~40% franking credits - this is because the fund uses some of the franking credits, but they gross up the dividend to compensate. I expect the dividend yield on the ETF would be larger, although I haven't checked.
Tax is also different for an ETF as you pay capital gains on the purchases and sales within the fund as you hold it, not just when you buy/sell the ETF. I believe they send you a statement at the end of the year outlining your capital gains liabilities. On the other hand in an LIC the CGT is dealt with inside the company, so effectively it comes out of the assets in the fund.
I hope most of that is correct!
Judd
15th-April-2008, 06:55 AM
Just one matter. With LIC's they distribute dividends and you include them in the tax year in which they are received. With EFT, they are actually listed funds and provide distributions which must be included in the tax year when they are accrued.
For example, for the tax year 2007/2008, AFI has paid two dividends on 22/8/2007 and 27/2/2008. These are included in your 2007/2008 tax return.
STW (an EFT) has paid distributions on 4/7/2007 and 4/1/2008. The distribution paid on 4/7/2007 is NOT included in the 2007/2008 tax year but has to be declared in the previous tax year, ie 2006/2007. The fund sends you a taxation statement to assist you in putting the right numbers in the right boxes.
osmosis
15th-April-2008, 09:42 PM
So why choose an index ETF (STW) over an establiashed LIC or vica versa?
reece55
15th-April-2008, 10:07 PM
So why choose an index ETF (STW) over an establiashed LIC or vica versa?
Osmosis
One reason may be the CGT discount that LIC's receive (i.e. they can distribute capital profits to eligible investors at a reduced rate). They (specifically say the larger ones, AFIC and Argo) also have very lower MER's ( lower than an ETF by quite a margin...
Out of interest, I have done some stats on the comparison between the XJO index and the two leading LIC's - to be honest, I was surprised that the indexes standard deviation was lower than the LIC's, because I always considered them a safe haven in the bad times. Average annual returns were also higher.... Very interesting stuff...
Cheers
osmosis
18th-April-2008, 12:08 AM
Wow, that's an interesting comparison. What time frame did you use for your Total Return calculation? By Expected Return, I take it you mean dividends and if so is that after tax or before?
Does the information suggest that STW is the better long term option?
intheblack
18th-April-2008, 08:48 AM
Don't forget many of the LICs offer discounted share purchase plans and rights issues, which provide added value that you don't get from STW. Argo, for example, offers an SPP twice a year at a 2.5% discount to share price, which effectively means that you're 2.5% up on that money already.
Judd
18th-April-2008, 09:34 AM
Interesting discussion. Another aspect to bear in mind that most LIC's, especially the older established ones, tend to maintain or even increase dividends on their expanded capital base, ie despite the issue of additional shares under share purchase plans, rights issues or dividend reinvestment plans.
awg
28th-August-2008, 10:54 AM
Can anyone comment on Liquidity, in respect to daily Volume of trading.
looking at STW, AFI and ARGO, they seem to trade lower volumes than I would like to see for a stock i had a fair bit in ( i dont at the moment).
very curious, whether this might cause excessive SLIPPAGE, if one decided to offload in a sudden market downturn.
if anyone has traded STW in particular, does it track the xjo very closely, in price and volume, or overshoot?
regards tony
Blue Monday
28th-August-2008, 12:43 PM
Can anyone comment on Liquidity, in respect to daily Volume of trading.
looking at STW, AFI and ARGO, they seem to trade lower volumes than I would like to see for a stock i had a fair bit in ( i dont at the moment).
very curious, whether this might cause excessive SLIPPAGE, if one decided to offload in a sudden market downturn.
if anyone has traded STW in particular, does it track the xjo very closely, in price and volume, or overshoot?
regards tony
STW has market makers in the stock who keep limit orders either side of the net asset value of the fund. Looking at the screen now, there is 45,000 on either side with a 4c spread... so at current prices you could buy or sell up to $2m instantly at a difference of less than 0.1% against the NAV.
AFI or ARG on the other hand don't have designated market makers like STW and the other ETFs do.
