Question re funds

[justakiwi]

OK, so today's pondering has been related to funds. I hold USF (just a few) but I have realised I really don't fully understand the inner workings of funds in general.

When I bought my first USF shares in May 2019 - I paid $8.007 for them. Today they are sitting at around $11.56. Which is great and makes me wish I had more ;) ..... but do fluctuations in price work the same way for funds (index or etf) as they do for companies? Will USF continue to climb in price over time, or is it already overpriced compared to equivalent SP500 funds?

I'll make it simpler .... where could one expect the price to be in (say) 10, 20 or 30 years? Is the sky the limit or will it reach some kind of plateau at some point and not move much from there?

[peat]

Funds are based on a range of companies and so if the companies (share prices) go up then so will the funds.
And if not, then um not. The major benefit in a fund lies in the range and diversity of individual company holdings the fund holds which shields you from large impact on the fund if one of those businesses has a company specific problem or I guess it can shield you from being ravaged if a whole sector has a problem. eg travel and tourism.

So just as no one can answer the question where the price will be in the future for a specific company, ultimately no one can answer it with absolute certainty for a fund either. However the fund will track the index as well as its managers can arrange and that should be very close. Index's do tend to go up over time so some people will say you can be quite sure over a long enough period it will rise.

[JeffW]

Another advantage for funds such as this for overseas investment, is that the tax treatment to the shareholder is very easy. Despite being comprised of off-shore companies, FDR calculations are not required for individual unit holders as they are PIEs for NZ Tax purposes

[justakiwi]

Thanks. Yes I understand this. I guess what I'm not understanding is this ...

With regards to companies such as OCA for example, we often discuss how "the market sets the price" and sometimes the market is reacting emotionally to something. With companies "the market" is those buying/selling their holdings in that one company. With a fund that tracks an index however, (as you say) price is based on the underlying price of the companies it tracks. But there is also "the market" for the fund itself. Those buying/selling their USF shares for instance. How does that aspect of "market" effect fund price because it doesn't seem to me, to work as it does with companies.

Or am I simply overthinking this?


Funds are based on a range of companies and so if the companies (share prices) go up then so will the funds.
And if not, then um not. The major benefit in a fund lies in the range and diversity of individual company holdings the fund holds which shields you from large impact on the fund if one of those businesses has a company specific problem or I guess it can shield you from being ravaged if a whole sector has a problem. eg travel and tourism.

So just as no one can answer the question where the price will be in the future for a specific company, ultimately no one can answer it with absolute certainty for a fund either. However the fund will track the index as well as its managers can arrange and that should be very close. Index's do tend to go up over time so some people will say you can be quite sure over a long enough period it will rise.

[JeffW]

The fund price tracks the underlying share values reasonably closely - you will see that the Smartshares Funds announce to the market, I think twice per week, the underlying asset value. Part of the reason that they track so closely is that the are "open ended" funds - there is not a fixed number of units and they create new units each month to cater for those investors who make monthly deposits into the fund. Contrast this with same KFL or BRM which often trade at a premium to the underlying NTA value

[Arthur]

0800 80 87 80 to ask smartshares who run the investment. You could ask them to send you a copy of the PDS as the link on their website does not work.

[Snow Leopard]

If I recall correctly, the Smartshares EFTs have a market maker who essentially will have buy and sell offers in the market and that keeps the price sensible.

[justakiwi]

Thanks everyone. Just looking to pick a fund for the grand kids. Their parents are keen to put a little bit into the Sharesies accounts I set up for them, to boost their accounts a little, but I am very aware that they know nothing about investing and will be relying on me to manage their contributions. I'm not comfortable using the money they put in, to buy companies, so at this point I'm leaning towards USF. Whatever Mum and Dad put in, will go into that, and I'll do my own thing alongside that. Not talking large amounts of money - they are on a tight budget too - but it is a big responsibility.

[Gonzoid]

Time to bring them in the loop then. Let them decide.

[Arthur]

Thanks everyone. Just looking to pick a fund for the grand kids. Their parents are keen to put a little bit into the Sharesies accounts I set up for them, to boost their accounts a little, but I am very aware that they know nothing about investing and will be relying on me to manage their contributions. I'm not comfortable using the money they put in, to buy companies, so at this point I'm leaning towards USF. Whatever Mum and Dad put in, will go into that, and I'll do my own thing alongside that. Not talking large amounts of money - they are on a tight budget too - but it is a big responsibility.
I started putting $50 a month into a NZ shares only account for the kids 18 years ago. It's worth more than $30,000 now.
Small regular contributions add up - that will buy a lot of beer and pizza.

[justakiwi]

They are in the loop. They were present when I sat the grand kids down and talked to them about what I was doing re their Sharesies accounts etc. They understand the basics but have a lot "on their plate" and don't have the time or interest to become involved to any great extent. They can see the benefit of what I am doing for the children and understand that it is a long term exercise. They are currently saving for their kids in bank accounts, which they will continue to do. I have explained that I would not be comfortable putting their contributions into anything very high risk, which is why I will not invest it in companies. I briefly explained funds to them, and will have another discussion about my choice of USF as an SP500 fund. I know there is always risk, but I believe an SP500 fund would be the "safest" choice. Whether USF is the best choice, I have no idea, but it is something I hold so am therefore familiar with. Warren Buffet has always said it doesn't matter which SP500 fund one chooses - just pick one. He has, however, suggested VOO in the past, which is what USF invests in. So, I feel comfortable going with it.


Time to bring them in the loop then. Let them decide.

[iceman]

So, I feel comfortable going with it.

So you should and Warren Buffett would back you up all the way with that decision