STW

Hi
I am looking to invest for the first time and put $10000 into an index fund. I was intending on investing in STW but on reading the PDS under transaction fees they state:
"The following fees apply to each application and redemption:
SPDR 50 Fund - $1,250
SPDR 200 Fund - $5,000
SPDR LPF - $700
The Transaction Fee is payable by an applicant at the time of application and by a Unitholder at the time of
redemption.
The Transaction Fee is borne by the Stockbroker. Unitholders should consult their Stockbroker for a complete
understanding of how the Stockbroker allocates the Transaction Fee amongst Unitholders"
Can anyone clarify this for me, from my reading on ETF's they are low cost options but I don't understand how the stockbroker would not just pass the fee on to the buyer (unitholder?). Any help would be greatly appreciated. Thanks

If you read the information on page 2 of the PDS you will note that the PDS is NOT intended for personal investors - it is intended for institutions and other "large" investors who are able to directly purchase units in the underlying fund.

The fees you mention are associated with the minimum application/redemption of 100,000 units in the fund (that's nearly $5m per transaction).

The brokerage costs you pay to your share broker more than adequately cover their own buy/sell costs!

thanks so much Sim... much appreciated! (i must've missed that bit )

With interest rates on a LOC around 5% and the STW returning around 9%, how confident do forum members feel that I would remain ahead in terms of the distributions covering the interest costs? I have read that company dividends are expected to fall but with such a large diverse level of exposure in STW, and the large holdings being in the Banks and BHP I would have thought I would be pretty safe. I mean I am aware that in terms of capital growth this might be -ve in the short term but one must consider the long term view as an investor.

Historically (by my calculations), STW has shown the following income returns over the past 8 years:

2008-09 2.1% (to date)
2007-08 5.6%
2006-07 7.0%
2005-06 5.9%
2004-05 6.9%
2003-04 4.4%
2002-03 2.9% (-5% growth)
2001-02 3.0% (-4% growth)

This is based on a simple calculation of total return minus growth to give income, so it's not necessarily completely accurate - but it's at least in the ballpark.

Yields may be high now, but I suspect they will fall as income (and hence distribution) levels fall. It will be a matter of how much the largest shares in the index will be forced to drop their dividend by.

Figures taken from this page: Yearly Performance: SPDR S&P/ASX 200 Exchange Traded Fund (STW)

So how does this fund compare with the Colonial First State Australian Share Index and the Vanguard Fund? The CFS fund seems to have a pretty low management fee if you opt for the wholesale fund, but I have read elsewhere that it seems to trade a lot..is this normal practice for an index fund to trade a lot?

I'm personally of the opinion that the ASX 200 has quite a bit further to fall over the coming weeks and months, and I have been waiting on the sidelines to also invest into STW, but at this stage I find it highly unlike that I will move into the market in the next 3 - 6 months, and to be completely honest I won't be surprised if this bear market runs all the way through 2009.

Yes we are seeing the 1/2 yearly results now which are a mixture of good and bad. I think once we have seen the final results (when the bigger dividends are traditionally paid!) and size up the companies which are really looking bad then I think the market can look forward to better times. I tend to agree that we have a bit to go in the downward trend..with 2800 being a popular spot!!

Hi BenBegg,

I have noticed that as well, Vanguard is a good choice as it has low turnover/distributions which is great for long term holding and better taxation due to less churning. I think Vanguard's retail MER is about 0.75%.

Cheers,

Dan

PS This is general information. Before making an investment decision speak to your FPA registered Financial Planner.

Looks like the CFS fund tracks the index pretty closely - see attached chart.

However the stats I've calculated show much higher distribution levels - which does tend to indicate a higher churn rate for some reason (I can't explain this - it's an index fund, why the churn ?) - Yearly Performance: Colonial First State (FirstChoice) Index Aust Share (FSF0233AU)

This of course means that the CFS fund is less tax effective - those charts only show pre-tax returns ... after tax, you'd be better off with STW if my calculations are correct.

MER is 1.1% for the CFS fund, which is a bit higher than Vanguard and quite a bit higher than STW.

Unfortunately I don't have a reliable source of data for Vanguard (yet!) so I can't do a direct return comparison between this fund and the others.

Attached Images

STW vs FSF0233AU.png (47.7 KB, 15 views)