ETF Exchange Traded Funds (ETFs) 2015

VHY historic yield is like 8.5% now? im overweight property and try to avoid banks..(tho have some)..but 8.5%

what ye thinks?

 

Ok now this may be a stupid question.....but why do ETFs do SPPs (Share Placement Plans)?

They don't need the money....well they shouldn't as the cash that comes in would cover outgoing dividends plus costs and them some.

Is it to grow the size of the fund...resulting in lower % fees?
Is it because they think there is good opportunities in the market and would like to top up on...maybe they think banks are cheap?
Is it because the ETF is trading at a decent premium to NTA and would like to capitalise on that fact?
Is it to offer investors an opportunity to buy more without brokering costs? (normally the discount is largely negated by the new SPP shares not being entitled to the next dividend).

Or is it because it is really a very well hidden pyramid scheme and they need the extra $$$ to pay out promised dividends?

 

Last month Goldman Sachs also entered the ETF market and now have 5 additional ETFs

Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF - GSLC
Goldman Sachs ActiveBeta Emerging Markets Equity - GEM
Goldman Sachs ActiveBeta Europe Equity ETF - GSEU
Goldman Sachs ActiveBeta International Equity ETF- GSIE
Goldman Sachs ActiveBeta Japan Equity ETF - GSJY
Goldman Sachs ActiveBeta U.S. Small Cap Equity ETF - GSSC

 

Which ETFs have you seen offering SPPs? Are you referring to fund such as AFI and MIR that are both LICs? Guessing that you might be since they both announced SPPs in the last week or so.

I'll leave it to wiser heads than me to say why they offer SPPs. My guess would be because it appeals to investors (the idea of getting something at a discount) and also as a way of boosting their funds under management which can be good for self-promotion.

I've invested with AFI and MIR for the last 10 years or so, and this is the first time I recall seeing SPP shares not entitled to the next dividend. The discount is larger to (roughly) make up for this.

 

Yield is high because there was a lot of rebalancing done in June - the index was 'adjusted' to reduce the tilt towards banks and increase the exposure to BHP and RIO. It's part of the reason why VHY has done so poorly - because BHP and RIO kept falling in the last qtr whereas the banks stabilised.

The rebalancing triggered large capital gains which we're distributed out in June ($1.76 distribution I think)

 

That's a shocker! I just checked my tax statement for year ending 30/6/15, and I am up for a hefty CGT on my VHY funds, although I didn't sell any of my holdings. BHP I can understand, but I can't believe now RIO is their 3rd top holding after TLS and NAB. I am thinking of buying more VHY at this attractive low price, but I am also wondering if I should purchase another high yielding ETF instead to diversify.

 

If you don't want to cop the CGT just go cap weighted, turnover is lower than rules based. I've got both.

 

Any thoughts on ASX-listed ETFs worth looking at for capital growth as well as currency gains. Thought is that an approach using ETFs means I avoid hassle of registering for US tax if I buy US-listed stocks directly. Alternatively LICs?

I started looking at acquiring some ETFs yesterday, however read the following today:

http://www.smh.com.au/business/mark...65-if-rba-cuts-fed-lifts-20151028-gklb2p.html

 

@The Falcon, are you referring to funds like VAS. I have VAS in same dollar value as VHY. Although VAS is attractive at a 0.15% fee, the dividend they pay is much less than VHY. How do you rate RDV compared to VHY?

 

Hows the tax treatment for ETF holds in US currencies or any other currencies rated in Aus tax return.... We are reviewing the Ishares global ETF options and came across below document......https://www.blackrock.com/au/indivi...oklet-for-us-domiciled-ishares-etfs-en-au.pdf

wat we understood...

• Distribution: These does not provide franking credits but offers a option for lower witholding tax rate 15% if bought in US $$ & claim that as offset in Aus tax return. does that mean if I am on 30% tax rate then I only have to pay 15% tax my distribution earnings as 15% is already paid in US.
• Return of capital: This is tricky. They are suggesting that you could have return of capital alongside distribution but not include in tax return. does it mean when I sell ETF I need to add them in cos base or deduct them??

appreciate if anyone can explain this in simple terms....

 

I am new to LICs. Can I please ask how you determine whether they are trading at a premium or discount? Thanks.

 

Hi Southboy
Thanks for posting this. (you to The Falcon)

I am still (STILL) procrastinating with the whole VAS/VHY funds.

Can you tell me please. Did you have to pay any CGT with VAS?

Can you also tell me if the CGT you paid on VHY knocked the returns to near VAS levels?

My background for VHY was only ever going to be a fund that I went into as an adjunct to my VAF/VAS/VGB investing. If there are CGT tax issues with any of these three I don't know about them. I had always thought CGT was only payable on selling a share (ETF in this case - which I thought was a share).

Thanks

 

In the case of an ETF, which is a fund that holds many shares, if they sell out of a company at a profit, then the fund has to pay CGT on that profit. This tax is passed on to shareholders of that ETF in the form of dividends, I believe.

My understanding - VHYs latest dividend was high because of the fund selling out of a company (based on the ETFs rules), but that higher than usual dividend came with some CGT to be paid on it.

Disclaimer - I don't hold VHY so im not sure.

 

Yep, don't get too hung up on current divi yield unless you need the cash now. Long term, retained earnings in the form of CG is more tax effective than divis. The issue you face with any rules based / smart beta product like a dividend ETF is much higher turnover (rebalancing per index rules, ie. selling stock and creating CG events) compared to cap weight index. (as much as 60% turnover vs 5% pa). Do some digging around and you will find some pretty high historical portfolio turnover in RDV and VHY. The only smart beta ETF that I add to on the ASX is QOZ as I think its methodology is superior to the dividend etf....but that is not without its compromises either. Hard to beat VAS as a core holding.....and beyond that, I think the Investors Mutual LIC QVE (ex ASX20 Quality+Value) is a good product and will provide a good well balanced portfolio in conjunction with VAS.

 

In the past 6 years I've held VAS, the annual Tax statements only mention CGT for this fund once. I presume that's because since VAS holds the top 300 shares in the ASX, it had to sell out of a company which fell out of the top 300 list and by the new entry into Top 300. No, CGT paid on VHY didn't knock the returns, but if your investment plan includes reducing your annual CGT bill, VHY can surprise you.

 

Wow, I didn't know such a product existed. Is there anything similar to this with a lower MER and more actively traded?

 

Generally managers who actively trade charge higher MERs. It's the index funds which just buy and hold the index which have lower costs

Edit - i realised you probably were referring to liquidity, not the investing strategy of the fund. My two cents - the small cap space probably isn't a great place to use an index fund. The index is full of speculative companies, startups, mining explorers etc and thus hasn't performed well. Small cap managers generally add value here, unlike the large cap space where the majority of active managers underperform.

 

1% and no performance fees is reasonable for small / mid management imo. Have a dig around the LIC reports and see if anything catches your fancy. Not for me. Watch out for performance fees and management that continues to award themselves large stock options.
QVE, as with VAS (and other LICs / ETFs) are very long term hold for me. Not too fussed about daily liquidity

 

Also a holder of QVE who has continued to add to holdings during dips although have now reached our maximum allocation. IML the fund manager are as good as you will get in the small/mid cap space. One of the most awarded managers in the industry. An advantage of this one over other worthwhile small/mid cap LICs such as MIR and WAM (although I don't like WAM despite its performance due to fees etc) is that you have an opportunity to get it in during its infancy at fair value which may not be the case in the future especially when it significantly jacks up its next dividend. In regard to MER if outstanding options are taken up the increased size of FUM may result in the MER around 0.875% (inc GST) which is still great value for a quality manager in this space.

We have also owned MIR for a long time which has served us well. MER around 0.7% due to being internally managed. But has been trading at a significant premium to NTA for quite some time. However for existing shareholders the upcoming SPP at a discount of 10% might be worthwhile which we may take up depending on price movement leading up to closing date next Wednesday.

Did initially take a stake in Perpetuals mid cap focused LIC (PIC) but have dumped it. First Suncorp was added to the portfolio and recently Woolworths, not exactly mid caps. Just looks very ordinary compared to QVE's approach. Plus the MER is a bit on the expensive side (not reducing with modest scale like QVE) and Large LISTED managers like Perpetual I feel are often more concerned with looking after their own shareholders rather than the investors in their funds. Rare for us to sell things but felt the funds invested with PIC would be better utilised by adding proceeds across to QVE which is a genuine pure small/mid cap fund.

 

Yes Austini, you are all over it IML is one of the few (only?) managers i'd pay for in this space, like you their methodology makes a lot of sense to me, and their track record speaks for itself.

QVE MER reduces as FUM grows...so, if I was to construct a 2 stock portfolio with ;

VAS (Vanguard ASX300 cap weighted) 65% @ 0.15%
QVE (IML ex ASX20 Quality+Value) 35% @ 0.87%

You'd have a portfolio with bettter sector balance than the index that should outperform over the long term for MER @ 0.40%. Just an idea.