Index fund comparisons

We compare Australian share index funds and profile a low-cost Exchange Traded Fund.
 
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  • Updated:6 Mar 2006
 

04.EFTs cheaper index funds

Exchange traded funds (ETFs) are index funds listed on the Australian Stock Exchange.

  • ETFs can be bought and sold like shares.
  • ETF fees are much lower fees than the unlisted index funds we've described so far.
  • There's just one provider of retail Australian share index ETFs in Australia - State Street Global Advisors (SSgA). It offers the streetTRACKS S&P/ASX 50 and S&P/ASX 200 funds.

ETF good points

  • Lower fees. No entry or exit fees and extremely low MERs - at just under 0.29% streetTRACKS costs less than half of what the next cheapest index funds cost, and as little as one tenth of what you could pay with some actively managed share funds.
  • Liquidity. You can get in and out quickly (like shares and other listed securities).
  • Price transparency. The ASX regularly quotes up-to-date ETF prices, telling you the exact price you can buy and sell at. With unlisted funds, investors don't know the exact buy/sell price when they put in an application or redemption notice (they'll probably get the day's closing price).
  • Other advantages are similar to those of unlisted index funds - for example index managers buy and sell shares less frequently than active managers so their transaction costs and capital gains/taxes should be lower.

ETF bad points

  • No choice. There’s only one provider of retail Australian share index ETFs.
  • Stockbroker fees. They’re effectively like entry/exit costs.
  • Not suitable for investors with relatively small starting amounts and who want to set up a regular savings plan (for example, making monthly contributions). Stockbroker fees would apply to each additional investment. While the annual management fees are higher with an unlisted index fund like BankWest’s Top 200, it might be more suitable for investors seeking a regular savings plan or with relatively small amounts to invest.
  • TRAP: inappropriate use. Some investors might buy and sell ETFs regularly — the opposite of what index funds are intended for. Trying to time the market is difficult; and buying and selling the index incurs transaction (stockbroker) costs.
 

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