Index Funds

[jarmstrongnz]

Hi there,

Done a search on index funds. Looking at my options deciding between STW and IOZ. I hear a lot supporting STW on these forums and not much talk of IOZ. IOZ offers lower expense ratio (0.19 vs 0.29) but still seems to be the less favourable option? is there more difference to them than just this? Also - is the ASX MSCI 200 index different to the ASX S&P200 index?

Cheers

 

[DeepState]

Hi there,

Done a search on index funds. Looking at my options deciding between STW and IOZ. I hear a lot supporting STW on these forums and not much talk of IOZ. IOZ offers lower expense ratio (0.19 vs 0.29) but still seems to be the less favourable option? is there more difference to them than just this? Also - is the ASX MSCI 200 index different to the ASX S&P200 index?

Cheers

IOZ is run by BlackRock iShares which is now the world's largest ETF provider. Their scale allows them to provide a lower cost option for a similar product. The difference between the MSCI and S&P representations of the Australian market are not worth your concern. It just comes down to technical points of limited consequence. Both represent a very similar exposure to the Australian equity market.

 

[jarmstrongnz]

Great info thanks. Exactly what I need to know. Are there any other factors i need to consider when deciding between the two. I suppose I am just curious that stw is by far the more popular choice of the two but as far as I can tell ioz seems the more favorable option (lower expense ratio)... Cheers

 

[DeepState]

Great info thanks. Exactly what I need to know. Are there any other factors i need to consider when deciding between the two. I suppose I am just curious that stw is by far the more popular choice of the two but as far as I can tell ioz seems the more favorable option (lower expense ratio)... Cheers

The biggest one is that portfolio activity from unit creation and destruction for insto and large clients disturbs tax parcels within the ETF. If a pile of large accounts redeems units rather than seeks to sell them on the market, this may lead to tax realisations that will be distributed to you.

In the ideal, you would want the unit with proportionately the least unrealized capital gains so that such activity does not lead to distributions of capital gains to you when flows in and out of the unit via in specie activity is not as detrimental to you. Finding out this info might be hard, but a call through to the clients service people to enquire is only the cost of a phone call.

STW has been around a lot longer than IOZ which is why it may be the more popular. But they aren't materially different in portfolio management.

 

[Tightwad]

have a look at VHY, low fee and better dividend than STW

http://www.switzersuperreport.com.au/2011/high-income-etf-smsf/

 

[So_Cynical]

Are there any other factors i need to consider when deciding between the two. I suppose I am just curious that stw is by far the more popular choice of the two but as far as I can tell ioz seems the more favorable option (lower expense ratio)... Cheers

STW Market capitalisation = $2,342,721,927
IOZ Market capitalisation = $318,883,933

Some say size matters and i imagine there must be some flow on to liquidity.

 

[DeepState]

STW Market capitalisation = $2,342,721,927
IOZ Market capitalisation = $318,883,933

Some say size matters and i imagine there must be some flow on to liquidity.

Good thing to consider. For large sizes of investment...and large is not that large, say couple of $100k, you actually get units created after an index is built and added to the investment pool. Same thing on destruction. As a result, given the same process of creation and destruction of units is the same for both, effective liquidity should be identical for larger players. For smaller players, you are transacting more traditionally. I'm not sure if the bid/ask spread for STW is narrower than IOZ. Given the tight arbitrage relationships which apply, I doubt it would matter that much if you are not intent on hammering the market. Both ETFs will likely give you fair values so you know what it should be before you trade.

 

[jarmstrongnz]

Cheers for the info guys although a lot of what you are saying is starting to go above my head.. to explain my situation a bit. Ive dabbled in the share market over the past few years with a little bit of success, just learning the basics. Now wanting to apply Buffett's long term strategy reccomendation of investing in a broad, low cost index fund and reinvest dividends. He reccomends S&P500 Vanguard, and I was trying to find the closest aussie equivalent.

 

[DeepState]

Cheers for the info guys although a lot of what you are saying is starting to go above my head.. to explain my situation a bit. Ive dabbled in the share market over the past few years with a little bit of success, just learning the basics. Now wanting to apply Buffett's long term strategy reccomendation of investing in a broad, low cost index fund and reinvest dividends. He reccomends S&P500 Vanguard, and I was trying to find the closest aussie equivalent.

Both are suitable. You can also go to Vanguard and buy their Aust eq fund rather than invest in an ETF.