ASX Index Tracking ETFs

[Ferret]

It's the end of the financial year and I am looking to add some ASX index tracking ETFs during the next year. I already hold A200 but have been thinking about getting into VAS since it is so popular.

There's plenty of data on ETF performance, but I thought I'd do my own check on the main ASX tracking ETFs. Here is my rough comparison for the last 12 months:

So what are my conclusions?

Firstly, I've only looked at one year. VAS trailed the other two, but it tracks the ASX 300 and the other two track the ASX 200. The ASX 200 outperformed the ASX 300 this year, but it may be that next year the ASX 300 performs better lifting VAS. I note that over a 10 year period the difference in these two indices is insignificant.

I understand that VAS tries to enhance its performance by loaning out its holdings. I don't think the other two do this. This seems to work for VAS since the difference in total return between IOX and VAS is smaller than the difference in performance between the ASX 200 and the ASX 300. The performance advantage is being masked by the underperformance of the ASX 300.

In terms of ETF price, A200 has outperformed the ASX 200 index that it tracks. This must be some quirk in the closing prices of A200 at the start and end of the financial year which has given it a head start?

A200 and IOZ both track the ASX 200, but A200 performed significantly better. I guess A200's class leading MER is giving it an advantage here, but A200's quirky head start must also be a factor. VAS' highest MER must also be a brake on its performance.

My analysis is crude and doesn't consider any differences in franking credits and cost base adjustments. I'm going to assume these are similar for the three ETFs, but this could be wrong.

Based on my analysis I'm going to rank my preferences 1st A200, 2nd VAS, 3rd IOZ. I want to diversify into VAS, but my check doesn't support this. For ASX exposure, I think I will keep adding to A200 whilst keeping an eye on any MER reductions by its competitors.

I'll do a similar comparison next year. I'll be particularly interested to see if the quirk in A200's capital gain reverses and what happens if the ASX 300 matches or outperforms the ASX 200.

 

[Bellcose]

Very interesting @Ferret. Appreciate your effort there.

If I may I'd like to add a couple of perspectives overall. First, we don't, as far as I know, have an EFT which tracks the All Ordinaries, which is considered total market and consists of the top 500 shares and accounts for 86% of all shares listed. Then there is the ASX300 index, which is about 83% of all shares listed and then there is the ASX200 index, around 80% of shares listed. Not sure that a 3% difference between ASX 300 v ASX 200 at the smaller end adds all that much in regards to performance but that's a matter for debate I guess.

The other aspect is the components for each distribution which, apart from franking, are Discounted Capital Gains and Foreign Income. Those can vary and you would need to examine the Tax Estimates published after each distribution. A tedious task which I am not going to attempt.

Then, of course, A200 uses a modified index rather than the S&P Global other ETF providers are licenced to use and that may impact performance.

My feeling is over the long-term I don't think there is a great deal of difference between any of them. I hold VAS but not inclined to add others. For me, it would only end up complicating things.

 

[Ferret]

My feeling is over the long-term I don't think there is a great deal of difference between any of them.

I agree, Bellcose.

Your point about A200 using a modified index is interesting. I wonder if that is the reason for the quirk in its performance that I noted. It will be interesting to see if the small outperformance of A200 is repeated next year.

I've also added a column for yield to my spreadsheet below. A200 and IOZ returned very similar yields, but VAS' yield was significantly higher. This might be another indication of the advantage VAS gets from lending out its holdings.

 

[Bellcose]

I mentioned various compents are contained in each distribution. Here are the links to the published information for teh March 2024 fro VAS and A200.

VAS

https://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=02792085

A200

https://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=02794288

You may wish to examine each to see any difference or impacts.

For others who read this, these are estimates only and should not be used for a tax return as its based on cash and not attribution amounts. I have seen a number of investors assume the distributions are dividends and complete tax returns on that basis before the annual AMIT statements are issued. The perplexed look on their faces when they need to submit an amended return is a wonder to behold.

 

[Ferret]

Here are the links to the published information for teh March 2024 fro VAS and A200.

Thanks, Bellcose.

I won't dive into trying to tabulate the distribution components for my comparison just now, but I might in the future. Maybe just a simple check of the % of the total distributions that is franked for each ETF is of interest and value. This wouldn't be too difficult.

I suspect the variations in after tax yield due to different component breakdowns would be small, but it would be interesting to check this.

I won't go so far as checking for the different tax brackets, although this is another variable.

 

[divs4ever]

Thanks, Bellcose.

I won't dive into trying to tabulate the distribution components for my comparison just now, but I might in the future. Maybe just a simple check of the % of the total distributions that is franked for each ETF is of interest and value. This wouldn't be too difficult.

I suspect the variations in after tax yield due to different component breakdowns would be small, but it would be interesting to check this.

I won't go so far as checking for the different tax brackets, although this is another variable.

i note today the franking credits or A200 were surprisingly low , 31% , might be worthwhile keeping an eye out for a correction

given holds MQG , GMG and CSL ( and others that do not fully frank ) less than 100% was a given but just over 30%?

 

[Ferret]

i note today the franking credits or A200 were surprisingly low , 31%

It does seem low. Maybe something to do with the nature of the companies that pay dividends during April, May & June.

 

[Bellcose]

It does seem low. Maybe something to do with the nature of the companies that pay dividends during April, May & June.

Did a search and found one STW (ASX200) which has already released its tax estimates for its July quarter distribution. Same may apply to the other ETFs you are researching.

 

[Sid23]

Hi @Ferret, would you consider an active fund instead of another passive index fund to sit with A200? i.e. MVW, an equal weighted fund, reducing sector concentration.

 

[divs4ever]

Hi @Ferret, would you consider an active fund instead of another passive index fund to sit with A200? i.e. MVW, an equal weighted fund, reducing sector concentration.

i found the strategy behind MVW interesting , but would need a much lower entry price before opening the wallet ( it is on my watch-list )

in my case it would pair with the existing VAS holding

 

[divs4ever]

It's the end of the financial year and I am looking to add some ASX index tracking ETFs during the next year. I already hold A200 but have been thinking about getting into VAS since it is so popular.

There's plenty of data on ETF performance, but I thought I'd do my own check on the main ASX tracking ETFs. Here is my rough comparison for the last 12 months:

View attachment 179682

So what are my conclusions?

Firstly, I've only looked at one year. VAS trailed the other two, but it tracks the ASX 300 and the other two track the ASX 200. The ASX 200 outperformed the ASX 300 this year, but it may be that next year the ASX 300 performs better lifting VAS. I note that over a 10 year period the difference in these two indices is insignificant.

I understand that VAS tries to enhance its performance by loaning out its holdings. I don't think the other two do this. This seems to work for VAS since the difference in total return between IOX and VAS is smaller than the difference in performance between the ASX 200 and the ASX 300. The performance advantage is being masked by the underperformance of the ASX 300.

In terms of ETF price, A200 has outperformed the ASX 200 index that it tracks. This must be some quirk in the closing prices of A200 at the start and end of the financial year which has given it a head start?

A200 and IOZ both track the ASX 200, but A200 performed significantly better. I guess A200's class leading MER is giving it an advantage here, but A200's quirky head start must also be a factor. VAS' highest MER must also be a brake on its performance.

My analysis is crude and doesn't consider any differences in franking credits and cost base adjustments. I'm going to assume these are similar for the three ETFs, but this could be wrong.

Based on my analysis I'm going to rank my preferences 1st A200, 2nd VAS, 3rd IOZ. I want to diversify into VAS, but my check doesn't support this. For ASX exposure, I think I will keep adding to A200 whilst keeping an eye on any MER reductions by its competitors.

I'll do a similar comparison next year. I'll be particularly interested to see if the quirk in A200's capital gain reverses and what happens if the ASX 300 matches or outperforms the ASX 200.

another option might be an ETF that focuses on a single sector index , say the financial or property sector ( very little franking credits in the property sector )

depending on your overall portfolio balance that might be useful ( just watch the costs before you buy )

 

[sptrawler]

another option might be an ETF that focuses on a single sector index , say the financial or property sector ( very little franking credits in the property sector )

depending on your overall portfolio balance that might be useful ( just watch the costs before you buy )

Hi divs, what costs are specific to ETF's?

 

[Sid23]

i found the strategy behind MVW interesting , but would need a much lower entry price before opening the wallet ( it is on my watch-list )

in my case it would pair with the existing VAS holding

That's what I've recently done, also have VAS and was going to add to it but decided to complement with MVW rather than being so heavily weighted to mining and finance. It does swing a bit more than VAS but as it does hold broad range of mid-large companies, it doesn't move too far in comparison.

 

[divs4ever]

Hi divs, what costs are specific to ETF's?

the normal MER but most start around 0.35% and considering several only pay 6 monthly AND only track that small index ( no fancy stuff ) that adds up compared to the standard index offerings

 

[divs4ever]

That's what I've recently done, also have VAS and was going to add to it but decided to complement with MVW rather than being so heavily weighted to mining and finance. It does swing a bit more than VAS but as it does hold broad range of mid-large companies, it doesn't move too far in comparison.

if you can track down the white papers on the website , they are long and winding but worth the read on the strategy used ( they only select about 80 shares to equal weight in the portfolio and rebalance 2 monthly )

 

[Bellcose]

As I suspected would be the case, lower franked dividends in VAS this distribution. $0.67 distribution, consisting of $0.38 franked dividends and $0.142 unfranked. Other income is $0.121.

Still, it proves one matter that overall you don't have to do much to make money from shares. Select a couple of low cost broad based ETFs according to you asset allocation, stay in the market no matter what and keep on investing in those products on a regular basis. Together with a couple of the older style LICs which don't trade around basis points and the ethos of the managers is they are the employees of the shareholders and act in their interest, you should be fine.

For the first time, the income this year from VGS exceeds VAS ($4.4 per unit v $3.52). Throw in the majority of my funds have been directed towards VGS over the last 18 months and a nice income results.

Messing about by altering holdings and continually fiddling is detrimental to long-term investing.

 

[Ferret]

Hi @Ferret, would you consider an active fund instead of another passive index fund to sit with A200? i.e. MVW, an equal weighted fund, reducing sector concentration.

Hi @Sid23,
No, I'm not really interested in an active fund. In most cases they fail to match the performance of the index and then charge a higher MER for the privilege of enjoying their under performance.

I'll stick with an index tracking ETF where the MERs are much lower.

another option might be an ETF that focuses on a single sector index , say the financial or property sector

This isn't what I want. Index tracking will give me a satisfactory return and keeps things simple.
If I tried to pick a sector, I'd end up getting it wrong!

the normal MER but most start around 0.35%

A200 - 0.04%, IOZ - 0.05%, VAS - 0.07%. All much better than 0.35%.

 

[Bellcose]

A200 - 0.04%, IOZ - 0.05%, VAS - 0.07%.

I acknowledge it's likely not on your radar but STW (ASX200 index) which was one of the first ETFS listed on the ASX in 2001, has an MER of 0.05%.

Bit of thread drift, if you are going international, depending on your attitude, besides VGS there is IJH (US mid-cap) and IJR (US small-cap) with low MERs (0.08% each) and a broader one of VISM (International smaller- cap developed countries) at MER 0.33% so you're paying for diversification away from the US. Some of those smaller companies have a market cap of c$16B AU, so would slot right in to the ASX 100 which indicates how tiny a universe is the Australian market.

 

[Ferret]

I acknowledge it's likely not on your radar but STW (ASX200 index) which was one of the first ETFS listed on the ASX in 2001, has an MER of 0.05%.

Thanks, Bellcose. That's one I wasn't aware of.

Re international, I'm happy with VGS so will stick with that.

One of the reasons I am building holdings in index tracking ETFs is because my direct stock holdings have become too numerous and unwieldy. I'm working to cull these and simplify things. If I ended up with multiple similar ETFs, it would defeat my purpose.

 

[Bellcose]

I'm working to cull these and simplify things.

Ah, you have reached that stage of your investing journey. Nice.

Only mentioned STW as I noticed it was missing. Held it from not long after it listed until I swapped to VAS when that came along. Probably a dumb move on my part but it is what it is.

Really odd thing about ETFs. I heard of Nirva (spelling?) and that it is in VGS but I have little knowledge of what it actually does. By investing via a broad-based ETFs you don't need to know either.

Don't knock me Alpha's. I need you to continue to what you are doing as it adds to volitility and that assists the LICs I hold.