International ETFs taxation/costs

Hi,

Looking at a portfolio of australian and international ETFs to hold for long term.

Have some VAS already which will give returns in AUDs
I however want exposure to the S&P 500 in USA for diversification and a broader earning base. The ASX200 feels too bank heavy with 25% of the fund formed by the top 4 stocks.

Anyway options i wanted to compare were buying USA ETFs either listed on Australian or USA exchanges.
VTS - USA domiciled, listed on ASX
IVV - USA domiciled, listed on S&P500

VTS - will have to pay 15% withholding tax which can be offset on our tax return in australia, forfeit franking credits, am able to access 50% CGT discount, low cost, exchange rate risk, liable for estate tax potentially

1) What if i buy IVV or another S&P500 index which is listed on USA exchange, for example through options express? What will be the fees, and what will the taxation implications be?

2) How do you guys cope with the exchange risk? I mainly am looking for a USA ETF so that the earnings base will be much broader than the ASX200. I dont think i will be able to predict the direction of exchange rates and dont want to.


Not wanting to look at worldwide/other ETFs.

 

I don't worry about it, long term I figure it is likely a wash. If it isn't then that portion of my portfolio will be doing what it is meant to.

Can't comment on the other issues, I only get Aussie domiciled ETFs to avoid worrying about it.

 

Like i want the diversification from having a wide earnings base from the USA companies, but having a +50% or -50% exchange rate change over the long term isnt ideal for me. I will likely spend most of my dollars in the future in AUD, but could keep some USD to keep reinvesting there

 

prefer unhedged with international investment ( i have local investments that should do well when the Aussie dollar is strong )

hedging adds extra costs and complexity .. but others seem to love it

 

Main problem for me is if i aim for a long term, low turnover portfolio in order to allow any CGT tax to compound for me, and then have a CGT event at the end - i can face a +50% or -50% change just due to the interest rate risk AUD/USD.

Seems risky in terms of capital loss in the long term.
The underlying improvement in earnings and dividends paid should be reliable though, odds are

 

long term ( 10 years plus for me ) inflation SHOULD be your friend against total capital loss , but might be an adversary in value ( buying power ) for the worth of your assets , your $20K investment might easily grow to $30K but only buy what $15K would buy now ( if that makes sense to you )

a bit like only having a small amount in your compulsory Super fees charges and insurance cover can leave a nasty cut to any capital growth , add in a little inflation .. and that super payout might not be so super .

PLEASE NOT dividends in ETFs are just as risky as in stocks ( the stocks need to pay divs first before an ETF can pass on those divs )

SOME LICs are different as they might withhold some of the divs in good years and trickle back extra returns in the poor years ( often called ' div. leveling ' )

not all LICs do this , just another piece of complexity that may ( or may not ) help you .

another assumption being made here is that the US dollar will still be the benchmark currency when you retire ( or cash out ) that might not be the case China is ascending and China is also coordinating on a BRICS based currency system ( will that only be used by BRICS members or be widely used like the euro is now )

 

Thanks for that
Agree that inflation will be protected against hopefully with a broad set of equities
Have not looked into LICs as dont want to pay management fees or feel managers can outperform
When you say risky, seems you are referring to just the dividend payout. If held for a long time, hopefully the risk of permanent decline in value may be minimal, although not 100% sure with such a small economy with skewed representations of banks

Fair point about the benchmark currency in the future. I think they will still be able to produce a valuable economic output as nation. Might be wise to have non US denominated stocks too.

Hrmm decisions

 

it certainly isn't easy ( making the best choices for YOU )

dividend income is important to me . yes , but also so is the buying power ( compared to real inflation )

and future inflation trends will be very hard to predict , notice how various Central banks keep revising estimates and in theory they have several levers to help control it ,

as a 'passenger ' ( passive investor ) trying to select an annual ( income ) return target range for say even the next 3 years is very problematic .

when venturing away from non-US ( international ) companies ( bundled into an index ) different issues arise .. like the current Japanese trend to admit they were faking quality control data , ( luckily this seems to be mainly using uncertified staff so far , but this could easily turn deadly , just like the air-bag saga )


( imo ) the best way to protect against future decline , is to invest cash at the bottom of market cycles , but the next market low-point is proving very elusive .

Australia has it's own problems for investors , i don't see the skew towards banks as the problem but the fact those 4 banks don't have many sensible paths to grow ( as highlighted by the misadventures of ANZ and NAB they tried good strategies but unsuccessfully ) with the big 4 banks much of the earnings gains will have to come from cost reductions OR by taking excessive risks .

PS LIC management fees on passive style portfolios can be quite competitive ( in this area i hold BKI but some others can lay claim or air value as well ) ( LIC managements fees are extracted before paying the divs , well in all the ones i am in they do , so if they make no money .... )

the MAIN DANGER currently in LICs are several players taking over management control of unfashionable LICs ( like HHV ) , i buy a LIC because of it's strategy not because i expect it to outperform every single year ( there will always be SOME bad years but hopefully some brilliant years as well )