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View Full Version : Hello and questions re Vanguard Indexed ETFs on ASX?



mp52
24-07-2013, 11:07 AM
Hi all,

Pretty new to investment and been lurking in the forum for a bit building up knowledge. At a stage where I'm gradually building up a stash in a Prem Saver cash account with intent to build-up a small (but hopefully growing) investment portfolio over the coming years.

My intended initial approach is to be pretty conservative/passive and become more active as I read more and become familiar with tools and techniques of fundamental analysis.

To that end I'm thinking about initially dropping some dollars into one of the US Vanguard passive fund ETFs available on the ASX (prob the S&P500 one - VTS.AX) because of their minimal management rate and reasonable return.

They're often recommended as a default option to newbie investors in the US - I'm just wondering if the gloss comes off when buying them as ETFs via the ASX?

As I understand it the ETFs are in US currency and not hedged. Dividends are automatically reinvested into the fund so there are no double taxation of dividends as with other ASX traded shares purchased in NZD.

I've seen posts elsewhere noting the risk of double currency exposure (NZD<>AUD<>USD). I know next to nothing about FSX but it seems probable that our dollar will fall back against the USD over 5+ years but the Oz is a bit of a wildcard.

Has anyone else looked down this path as a stop-gap low-maintenance investment? Any recommendations to resources/reading to better assess the currency risk of investing in a US ETF on the ASX?

As a footnote, I'm considering the same thing (passive indexes) on the NZX for NZ holdings but the options are slim and as others have noted, fairly lack-lustre performers hampered by a much smaller number of listings with large biases to a small number of large NZ companies (e.g. TEL).

For NZ holdings other initial options I can see are to go with a managed fund or stay out of the market until I'm confident picking stocks. I'm reading Pat Dorsey's "Five Rules for Successful Stock Investing" at the moment and finding that a good read. Will be interesting to see how well the advice can be applied to the NZ market.

mp52
24-07-2013, 03:49 PM
Thanks for this.


You could cough up the brokerage and have your broker buy a listed fund or ETF directly on the US exchange. Not only would you get a much wider choice, but you only have one exchange cross rate to worry about.

Is that achieved via some form of sponsorship arrangement between the brokerage and me (i.e. direct ownership is not me) or are those securities held in my name? I suspect there are some minimum requirements for international customers that might make this option prohibitive for the level of investment I'm looking at (a few 10Ks).


Alternatively, look at investing directly into a non-listed index fund. Then you have a choice of hedged or unhedged. Check out Vanguard as they come highly recommended due to their low management fees and no up front loading costs. For example you can get a Vanguard international equity fund hedged in NZ$
https://www.vanguardinvestments.com.au/institutional/inst/investments/funddetailNZVISIFH.jsp

Had a look at this before but the 500K min investment is a bit out of my reach. They say it's negotiable but I doubt to the degree I'd need!

mp52
24-07-2013, 06:34 PM
Useful to know. Maybe the PathFinder WorldEquities fund is a better option in that case. Management fees of 1.10% (versus) 1.2% for broker. Mostly invests in tactical (but non-derivatives based) world market ETFs and consists of a hedged and unhedged component with the ratio adjustable at any time by the customer (no fee).

There's a good interview with the fund manager on Interest.co.nz here (http://www.interest.co.nz/personal-finance/61349/personal-finance-editor-amanda-morrall-talks-pathfinders-john-berry-about-etf).

Kaspar
25-07-2013, 11:55 PM
Hey mp,

I'm taking a passive approach as well and did a bit of homework at the start of the year in regards to what was the best path to take. The NZ market was quite easy I thought and chose the Smartshares Fonz ETF (FNZ) for a number of reasons:
- cheap fees (relative to other local funds)
- tracks the NZX50 Portfolio Index which has good NZ diversification and caps stock weight at 5% which stops the big caps you mention from dominating the index.
- you can drip feed a monthly amount with no brokerage fees
- largest market cap ETF with best liquidity on NZX

For the US market there are several ETFs on the ASX that Kiwis can easily access. You mention VTS (which is actually US Total Market not S&P500), if you want S&P500 there is the iShares IVV. The problem with these is the currency risk and you cannot make regular contributions without brokerage fees eating up the gains. (Also by default these ETFs pay quarterly dividends, you have to notify the appropriate registrar if you want to automatically reinvest your dividends). But if you were still keen and started building a decent sized holding you would then have to think about the FDR tax on holdings of 50k and over. It really starts to look quite bleak.

Smartshares are looking to bring several more ETFs to the NZX later this year including a global equities one. In the mean time I'm just going to keep adding to my FNZ holding and will evaluate the new ETFs when they launch. Hopefully their global one is ok because I really like the regular saving plans. If it's crap I will prob buy into one of the ASX ETFs and worry about the FDR tax when the time comes.

mp52
01-08-2013, 02:34 PM
Kaspar,

Thanks for the info and sorry for the late reply - have been off the forum. The Smartshares Fonz does sound like a pretty good balance for a fair price. I'll look into that further. The attraction of the ASX traded EFTs is muted with the brokering and tax deductions added in. As I understand it the FDR is essentially a tax on the already taxed net paid dividend (thanks to Oz imputation credits not being carried over to NZ) - bah!

Good news if Smartshares is introducing new ETFs though. Will put them on the watch list. Hopefully some other providers will do likewise and introduced more choice and price competition into the NZ market.

CJ
01-08-2013, 02:59 PM
Good news if Smartshares is introducing new ETFs though. Will put them on the watch list. Hopefully some other providers will do likewise and introduced more choice and price competition into the NZ market.unlikely. AMP had a global fund but closed it down due to lack of demand (I think that was the reason). I was disappointed they didn't try to sell it to Smartshares/NZX or more rightly, the NZX didn't try to buy it as I though it was a valuable addition to the market.

Valuegrowth
04-08-2013, 08:53 PM
Hi all,

Pretty new to investment and been lurking in the forum for a bit building up knowledge. At a stage where I'm gradually building up a stash in a Prem Saver cash account with intent to build-up a small (but hopefully growing) investment portfolio over the coming years.

My intended initial approach is to be pretty conservative/passive and become more active as I read more and become familiar with tools and techniques of fundamental analysis.

To that end I'm thinking about initially dropping some dollars into one of the US Vanguard passive fund ETFs available on the ASX (prob the S&P500 one - VTS.AX) because of their minimal management rate and reasonable return.

They're often recommended as a default option to newbie investors in the US - I'm just wondering if the gloss comes off when buying them as ETFs via the ASX?

As I understand it the ETFs are in US currency and not hedged. Dividends are automatically reinvested into the fund so there are no double taxation of dividends as with other ASX traded shares purchased in NZD.

I've seen posts elsewhere noting the risk of double currency exposure (NZD<>AUD<>USD). I know next to nothing about FSX but it seems probable that our dollar will fall back against the USD over 5+ years but the Oz is a bit of a wildcard.

Has anyone else looked down this path as a stop-gap low-maintenance investment? Any recommendations to resources/reading to better assess the currency risk of investing in a US ETF on the ASX?

As a footnote, I'm considering the same thing (passive indexes) on the NZX for NZ holdings but the options are slim and as others have noted, fairly lack-lustre performers hampered by a much smaller number of listings with large biases to a small number of large NZ companies (e.g. TEL).

For NZ holdings other initial options I can see are to go with a managed fund or stay out of the market until I'm confident picking stocks. I'm reading Pat Dorsey's "Five Rules for Successful Stock Investing" at the moment and finding that a good read. Will be interesting to see how well the advice can be applied to the NZ market.

Some of my ideas for those who new to the market:

Have some confident before pickings stocks
Please do not follow the crowd and do some home work
Learn as much as possible before put your hard earn money in the market. Even experts make bigger mistakes.
Have a wonderful intelligent strategy. Stay with your successful strategy once you learn the market.
Markets are not 100% risk free and nobody can predict 100% correctly.
Options, futures and other complicated instruments are not suitable for everybody and there are so many risk involved. Sometimes these instruments can become mass of destructions.
Having knowledge of currency trend and commodity trend can reduce risk in investment
Invest in business that we know very well and in simple business.
At different times deferent markets, sectors, stocks and commodities will outperform others. We should identify coming bull markets in all types of assets before others.
Take intelligent actions before others

There are so many ETFs, Index funds and managed funds globally. One has to do thorough study before buying them.

Please see following links:

http://beginnersinvest.about.com/lw/Business-Finance/Personal-finance/All-About-ETFs-Exchange-Traded-Funds-.htm

http://beginnersinvest.about.com/od/beginnerscorner/The_Basics_Investing_FAQ_for_New_Investors.htm

mp52
06-08-2013, 12:42 PM
Some of my ideas for those who new to the market: ...

Useful tips thanks Marketwinner and points echoed in the recommended reading I have done to date. The difficulty I have is recognising at what point I'll know enough to be ready to commit hard earned cash. Many posters on here seem to have a backstory with some early failures which in hindsight they regard as valuable lessons. It's human to want to put an optimistic spin on past defeats so guess these lessons may have been avoidable in some cases with more knowledge but at some point you've got to jump out of the nest and attempt to fly!

I don't feel I have sufficient knowledge/skills yet to embark on an aggressive strategy. I'm hoping I'll be able to recognise when I'm sufficiently prepared. Until then, taking a reasonably defensive position with ETFs feels like a good first step. Of course some sounds general investment knowledge should underpin any decision (i.e. allocation, diversification, risk tolerance, rational thinking etc.).

I have yet to find a good introductory book on macro economics in regards to markets (i.e. one that isn't written for by economists for other economists). Any recommendations for a good primer in this area that isn't jargon heavy or overly theoretical?