Creating My Own NZX 50 Index Fund

[epower]

Let's say I have $500k and want to create my own NZX 50 index fund.

I start out by buying 10k of each company that makes up the index (each company has a weighting of 2% in my 'index') and then buy and sell where necessary to ensure companies weightings in my 'index' don't get too out of proportion. For a rough example, I'd sell half if they became 4% of the index and buy double if they became 1%

Let's say I rebalance once a year.

Would I get charged capital gains tax for doing this or because my intention was to simply create an 'index' therefore buying low/selling high was never my initial motive.

Not sure if I'll have the desire to do this for 50 companies but I'd like to think it's possible for my own 'property index' fund or 'infrastructure fund' (property plus ports, utilities, etc).

Love to hear if anyone does something similar. Thinking I could probably lower fees compared to simply buying a pre set up fund through smartshares for example.

[hardt]

Unfortunately I don't know of any platforms that offer NZX listings with the auto trading that would not require you to DIY... auto trades every (timeframe) at market price (bid/ask) to maintain the desired weighting in your portfolio.

At the end of the day your intention is to gain on your capital... Need I say more in regards to the capital gains tax applying?

[blackcap]

Unfortunately I don't know of any platforms that offer NZX listings with the auto trading that would not require you to DIY... auto trades every (timeframe) at market price (bid/ask) to maintain the desired weighting in your portfolio.

At the end of the day your intention is to gain on your capital... Need I say more in regards to the capital gains tax applying?

NZ does not have a capital gains tax hardt. Only a tax on trading profits. What epower is suggesting is replicating what the NZX offers through their smartshares. Smartshares also do not auto trade, but have a employee or computer that works out the weightings and where necessary purchases or sells stock to retain the weightings in the correct manner. These ETF's do not pay tax on capital gains... because NZ does not have a tax on capital gains.

[Lewylewylewy]

I used to have lots of different shares. Thought I was spreading my risk. In the end, all I was doing was reducing my gains from the companies I primarily wanted to invest in, which performed best.

[Lewylewylewy]

Also trading fees will kill your profits, doing this model.

[ratkin]

Sounds like it would be much cheaper and less troublesome to just buy the smart share.
You have to ask yourself if you would be prepared to put 500k in a single smartshare. If not then dont even bother recreating one.

Most Investors of NZ shares are subconsciously doing what you suggest anyway. Ie buying a basket of stocks they like. In a way that just another name for a personal index. My own one was health and retirement stocks, as I bought into the trend very early on. Ryman, Ramsey, Cochlear, CSL, SUM, EBO it just like a mini index, including some minor adjustments when one became too larger part of portfolio

[hardt]

NZ does not have a capital gains tax hardt. Only a tax on trading profits. What epower is suggesting is replicating what the NZX offers through their smartshares. Smartshares also do not auto trade, but have a employee or computer that works out the weightings and where necessary purchases or sells stock to retain the weightings in the correct manner. These ETF's do not pay tax on capital gains... because NZ does not have a tax on capital gains.

Sorry, yes... HotCopper has me thinking I'm Aussie or something haha.

33% tax on realised gains still applies here, without the benefit of using capital losses to offset that...

All in all, I'd prefer to have my account in HKG!

[traineeinvestor]

All in all, I'd prefer to have my account in HKG!

HKG has its advantages - no taxes on dividends, interest or capital gains among others - but we live in the world's most expensive shoeboxes.

[GTM 3442]

There are about a zillion ready-made indices out there that you can pick and choose from.

It's almost at the stage that there can be as much work in selecting an index to match as there is in selecting individual shares.

[Rep]

The easiest way is to get a SmartShare.

Incidentally, the NZX50 inclusion is based on free float liquidity so the likes of Michael Hill International and Briscoes Group aren't in and then serial underperforming stocks like Fletcher Building and Spark make up a large component of the NZX50.

The Gentailers like Mercury, Meridian and Genesis saw most of their growth at IPO so again they are only there because of size as you'd expect modest capital growth as they are mainly yield stocks.

Also companies outside the Index gain when they enter because fund managers who track the index have to buy in to balance their funds... and when they drop out the stocks you see funds sell out.

Tracking the 50 means you get the average and a lot of fairly mediocre holdings because of the criteria and weighting of large stocks.

[Hoop]

ETF's and other many all sorts of passive intruments become very popular with the "I'm not really an investor" investor at a very late stage of a booming market...

These sort of "investor" can end up dominating a fund and when the tide turns they scare easy and all scramble at once...therefore that fund has more potential for a hard landings than the overall market...Also be careful about "indexed" or "managed" investing with a private company, when the run begins you find out "those companies which have been swimming naked". ..It does happen ..ask a past Gold investor..

In saying this I'm not sure just how well you are protected using the Exchange itself (ETF)..Read the fine print if there is one. Unfortunately, when the market is hunky dory most perceive problems as something that "would never happen".

I've seen the popularity of passive type of investing wax and wane over the decades (only the names or the way it operated were/are changed) and I ask myself, "When was the last time this sort of stuff popular?"

I list "Ducks" a personal name I invented for listing conditions that pop up before a market cycle reversal (when all the ducks line up in a row)...Passive fund becoming hugely popular is one of my ducks

Please......before anyone decides to enter these managed type funds..do your homework in a practical non-emotional way (remove the rosy glow from your vision)

Please read this Seeking Alpha Article "The Passive Indexing Trap by Lance Roberts 25/4/2017, (https://seekingalpha.com/article/4064835-passive-indexing-trap) as a starting point

[blackcap]

The easiest way is to get a SmartShare.

Incidentally, the NZX50 inclusion is based on free float liquidity so the likes of Michael Hill International and Briscoes Group aren't in and then serial underperforming stocks like Fletcher Building and Spark make up a large component of the NZX50.

The Gentailers like Mercury, Meridian and Genesis saw most of their growth at IPO so again they are only there because of size as you'd expect modest capital growth as they are mainly yield stocks.

Also companies outside the Index gain when they enter because fund managers who track the index have to buy in to balance their funds... and when they drop out the stocks you see funds sell out.

Tracking the 50 means you get the average and a lot of fairly mediocre holdings because of the criteria and weighting of large stocks.

Fees on smartshares are atrocious as well when compared to overseas equivalent like Vanguard. (that said fees are under 1% so a lot better than the actively managed funds in NZ, but really could come down a bit on the Smartshares ones...

[RTM]

Please read this Seeking Alpha Article "The Passive Indexing Trap by Lance Roberts 25/4/2017, (https://seekingalpha.com/article/4064835-passive-indexing-trap) as a starting point

Thanks for this Hoop. A sobering read. It has been very easy to manage everything as stocks have been generally going up for the last 5 years or so, as long as you don't bet on a real dog. I wonder how some of us are going to manage when the market starts to go in the other direction ? I don't really use any financial advisor help...not really sure who I would trust / believe. Food for thought....

[sonny n share]

Mel 22% pa over last 24 months, and 20% over last 12 months is pretty good. Tho it has had its ups and downs.

You can pay much lower fees than smartshares if you buy ishares or vanguard directly but you have the complication of fif if you purchase over $50k. Also smartshares/superlife allows you to make small purchases at no fees. Yes it would be great if they dropped the fees!

We probably are all wondering when the next big dip will be!