Switching ETFs

[qwerty8675309]

I've been investing in two ETFs over the past few years. Both ETFs have very similar compositions:

VAS - Vanguard ASX300 shares
STW - SPDR ASX200 shares

Both VAS and STW track very close to each other. VAS has an expense ratio of 0.15%, while STW has an expense ratio of 0.29%. I've been thinking of selling my STW units, and buying VAS in its place. There are CGT and other expenses involved (brokerage and buy/sell spreads) involved in switching over.

Over the long term (say 5-10 years), the returns on VAS will be quite a bit higher compared to STW because of the differences in the expense ratio. Is it worth switching over investments, or is it worth waiting to see if STW lower their expense ratio to match VAS? How likely is this to occur?

 

[Bill M]

Hi querty and welcome to the forum. I have invested in both those ETF's in the past too. Both have been around a long time and State Street has had long enough to bring down it's ETF management fees but it has decided not to so in my opinion I don't think they will.

If it was me, I would sell STW, pay the capital gains and stick the lot in with VAS. You have already proved VAS has had better returns so there is no question there. The only things you need to weigh up is, is it worth paying the CGT tax and brokerage and counter party risk. By that I mean, is Vanguard likely to go bust? I doubt it but it is something to think about.

Currently I hold the ETF's VHY and RDV, RDV has a MER higher than VHY. I will monitor and see how I go over a 12 Month period and then I will make a decision as to switching if neccessary. Should one be considerably better than the other I might consider changing as well. All the best and good luck.

 

[StockTrader010]

I've been investing in two ETFs over the past few years. Both ETFs have very similar compositions:

VAS - Vanguard ASX300 shares
STW - SPDR ASX200 shares

Both VAS and STW track very close to each other. VAS has an expense ratio of 0.15%, while STW has an expense ratio of 0.29%. I've been thinking of selling my STW units, and buying VAS in its place. There are CGT and other expenses involved (brokerage and buy/sell spreads) involved in switching over.

Over the long term (say 5-10 years), the returns on VAS will be quite a bit higher compared to STW because of the differences in the expense ratio. Is it worth switching over investments, or is it worth waiting to see if STW lower their expense ratio to match VAS? How likely is this to occur?

You could calculate a payback measure by multiplying the difference in TER by your investment in STW. Divide your transaction costs (2 times, 1 for selling STW and 1 for buying VAS) by this number. The lower this number is the better, it indicates how many years you need to earn the costs back.

 

[qwerty8675309]

Thanks Bill M and StockTrader010. I ended up selling part of my STW holding, up to a point where I wouldn't be liable for any additional CGT (selling loss making parcels, and profit making parcels). The remainder units, I might wait until there is a large correction so I can sell the rest with minimal CGT liability.