Author Topic: Australian Investing Thread  (Read 686695 times)

potm

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Re: Australian Investing Thread
« Reply #300 on: October 20, 2014, 08:54:52 PM »
So I sucked it up, swallowed my pride and after 9 years of losing a bucket of cash on individual stocks I bought 100 VHY a couple of minutes ago.

As soon my 1000 WBC shares go ex dividend in November I'm going to transfer them to VHY too. An inordinate amount of capital losses carried forward will ensure I won't be paying CGT on the disposal either :)

If you have capital losses to use then you may be better off selling before the ex-dividend date to utilise them more. Of course it'll depend on how much the share price moves on that date which we can't know beforehand.

Primm

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Re: Australian Investing Thread
« Reply #301 on: October 20, 2014, 08:58:47 PM »
Yes you most certainly could claim the interest - if you do pay it off initially and can show all interest is from share purchases.

Sounds like you're on to a winner!

Awesome, thanks! That was my gut, and I couldn't find a reason why it wouldn't work.

The Falcon

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Re: Australian Investing Thread
« Reply #302 on: October 20, 2014, 09:27:42 PM »
provided the CC is not used for anything else that would mix non-deductible and deductible debt, then you wont have an issue.

Primm

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Re: Australian Investing Thread
« Reply #303 on: October 20, 2014, 09:28:51 PM »
That's the plan. :) I have another CC I use for everyday purchases, so this one would be totally separate.

The Falcon

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Re: Australian Investing Thread
« Reply #304 on: October 20, 2014, 09:30:35 PM »
Do it :)

dungoofed

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Re: Australian Investing Thread
« Reply #305 on: October 20, 2014, 09:55:40 PM »
LOL classic! You've got me thinking about going into debt for a while, just so I can get a credit card company to offer me 3.99% on my balance!!

(just kidding)

I like this particularly as it feels like you are hacking the system.

Marty - sorry to hear about your losses but at least the path forward is a lot clearer.

Primm

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Re: Australian Investing Thread
« Reply #306 on: October 20, 2014, 10:05:54 PM »
LOL classic! You've got me thinking about going into debt for a while, just so I can get a credit card company to offer me 3.99% on my balance!!

(just kidding)

I like this particularly as it feels like you are hacking the system.

Marty - sorry to hear about your losses but at least the path forward is a lot clearer.

I know, right? That's why I had to check.

potm

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Re: Australian Investing Thread
« Reply #307 on: October 20, 2014, 11:34:34 PM »
Why settle for 3.99% when there's so many out there offering 0%!

Also by mindful that you might not be able to do a BPAY from your credit card to all billers.
Also that it might be counted as a cash advance so make sure your cash advance rate is also at 3.99%

Primm

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Re: Australian Investing Thread
« Reply #308 on: October 20, 2014, 11:40:09 PM »
I'll check with a small transaction first, but Bpay for me has always been at the purchase rate.

I have yet to find a CC with a 0% rate on purchases, they all seem to offer no interest on balance transfers for a very short (~12 months) time. 

My plan firstly is to wait until I have the cash ready to buy another parcel, try and pay for it with my CC, let it cycle through a month of not paying the full CC amount and see 1/ whether the initial transaction works, and 2/ how much they charge me in interest. After that it's game on. Will keep you posted. :)

potm

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Re: Australian Investing Thread
« Reply #309 on: October 20, 2014, 11:56:47 PM »
For example using BPAY from a credit card to pay off another credit card bill will usually not be allowed or treated as a cash advance.
I imagine the same thing will apply if you BPAY into your broker account.
Let me know if you get it to work though.

3.99% rate forever is certainly a very good deal.

nonsequitur

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Re: Australian Investing Thread
« Reply #310 on: October 21, 2014, 12:03:06 AM »
Certainly an interesting strategy.  What about BPAYing from CC account to broker, then doing a balance transfer to a new card?  Seems like that way you could get a 12-18 month 0% loan, and maybe some CC signup bonuses to go along with it.

slothman

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Re: Australian Investing Thread
« Reply #311 on: October 21, 2014, 12:15:31 AM »
Secondly WXOZ will likely be more tax-efficient.

Sorry I'm still not getting through my thick skull this withholding business and US vs AUS domiciled. It's the first time for me buying ETFs and international shares. Is there somewhere I can do more reading?

marty998

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Re: Australian Investing Thread
« Reply #312 on: October 21, 2014, 02:14:49 AM »
So I sucked it up, swallowed my pride and after 9 years of losing a bucket of cash on individual stocks I bought 100 VHY a couple of minutes ago.

As soon my 1000 WBC shares go ex dividend in November I'm going to transfer them to VHY too. An inordinate amount of capital losses carried forward will ensure I won't be paying CGT on the disposal either :)

If you have capital losses to use then you may be better off selling before the ex-dividend date to utilise them more. Of course it'll depend on how much the share price moves on that date which we can't know beforehand.

Yes that's true, thankyou. Given my tax bracket I would also rather not have to declare the dividend. We'll see how it goes on the day.

This_Is_My_Username

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« Reply #313 on: October 22, 2014, 04:42:02 AM »
Primm, is using Bpay from a credit card account classified as a "cash advance" ?

(someone else already mentioned this)

let us know how you go. 

Primm

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Re: Australian Investing Thread
« Reply #314 on: October 22, 2014, 07:24:26 AM »
Not generally. It depends if they classify it as a monetary transaction (cash advance) or a purchase. I guess you could argue either way. Haven't done it yet, the CC isn't quite paid off so as soon as it is I'll give it a go and let you all know. :)

superannuationfreak

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Re: Australian Investing Thread
« Reply #315 on: October 22, 2014, 06:49:36 PM »
Secondly WXOZ will likely be more tax-efficient.

Sorry I'm still not getting through my thick skull this withholding business and US vs AUS domiciled. It's the first time for me buying ETFs and international shares. Is there somewhere I can do more reading?

This is my non-expert understanding:

IOO is a US domiciled fund which holds (for example) German companies.
When the German company pays dividends to the fund it withholds 15% in German taxes.
When IOO goes to pay a distribution of all the accumulated dividends half-yearly the US government withholds 15% of the distribution (if you fill in the W-8BEN)
That second 15% we can potentially get as a foreign income tax offset on our Australian taxes.  The German withholding tax is just lost.

WXOZ is an Australian domiciled fund which holds German companies.
When the German company pays dividends to the fund it withholds 15% in German taxes.
We can potentially get this back as a foreign income tax offset on our Australian taxes. 

If you ignore references to RRSP and TFSA the Canadian situation is similar: http://canadiancouchpotato.com/2012/09/17/foreign-withholding-tax-explained/

potm

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Re: Australian Investing Thread
« Reply #316 on: October 22, 2014, 07:43:42 PM »
Thanks for your research and insights into it superannuationfreak.

I'd also like to note that in both examples that you gave, the original company tax paid by the companies is always lost.
What we are talking about is just the withholding tax on dividends.

Makes Australian shares and fully franked dividends seem so much better and why I maintain a strong home bias in my investing.

Just a quick example, all numbers and rates are hypothitical for illustrative purposes only.
A German company makes $100 dollars profit per share and you have 1 share.
Tax of 30% means $30 of tax and leaves $70 of profit per share.
Assuming that company pays out 100% of the profit as dividend of $70 dollars of which 15% is withheld, so $11.5 in tax and $59.5 in dividend.
Then IOO pays a dividend of which any withheld amounts can be claimed as an offset so don't need to be included.
End result you will receive a $59.5 dividend of which you will have to pay your marginal tax rate on, assumimg 39% means $23.2 of tax and $36.3 leftover.

So from the original $100 of profits the company makes, you only receive $36.3. Of course companies don't pay out 100% of profits, with capital gains being much better tax wise where there is no franking and withhelding taxes lost.

The Falcon

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Re: Australian Investing Thread
« Reply #317 on: October 22, 2014, 08:35:50 PM »
This is why I like BRKB/MKL/Y in addition to VTS....no distributions...ever. Just CG.

AustralianMustachio

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Re: Australian Investing Thread
« Reply #318 on: October 22, 2014, 10:59:42 PM »
INteresting idea with BRK.B Falcon. Just to confirm, is its performance exactly the same as the BRK.A except on a smaller scale?

Also how do you purchase it in Australia? I went back through the thread and couldn't find mention of that

The Falcon

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Re: Australian Investing Thread
« Reply #319 on: October 23, 2014, 01:42:52 AM »
Yep, performance mirrors the A shares. Can buy through any broker, just a bit more expensive than ASX stocks. I hold BRKB, MKL, GLRE and Y as well as VTS. Going forward ill probably hold 50% VTS and 50% direct stocks with the lions share of that to MKL and BRKB. I just like holding these stocks and following their investments.

AustralianMustachio

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Re: Australian Investing Thread
« Reply #320 on: October 23, 2014, 04:20:59 AM »
Cheers Falcon! Yeah I felt silly a bit after asking that - just compared the two companies using google finance and saw the lines matched up exactly. Oh well at least I'm learning, and I owe much of it to this thread and having my questions answered here, so thanks again.

(I'm using an online broker at the moment, nabtrade, as I am banking with them and my accounts are already on their system. I haven't yet been able to find out if buying US stocks is possible via nabtrade, but I will no doubt find an answer soon and report back)

dungoofed

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Re: Australian Investing Thread
« Reply #321 on: October 23, 2014, 08:05:34 AM »
Regarding WXOZ and IOO comparison, are there any cases you can think of where it would actually be better to hold IOO?

The liquidity is slightly better for IOO than WXOZ, but considering none of us should be panic-selling it shouldn't matter. Anything else?


dungoofed

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Re: Australian Investing Thread
« Reply #322 on: October 23, 2014, 08:57:31 AM »
Actually http://canadiancouchpotato.com/2014/09/12/foreign-withholding-taxes-in-international-equity-etfs/ gives another answer, namely that theoretically there are savings when using US-based funds, specifically "Replicating these indexes with individual stocks would be costly, and there is an argument to be made for using highly liquid US-listed ETFs to get the same exposure"

superannuationfreak

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Re: Australian Investing Thread
« Reply #323 on: October 23, 2014, 06:31:45 PM »
Actually http://canadiancouchpotato.com/2014/09/12/foreign-withholding-taxes-in-international-equity-etfs/ gives another answer, namely that theoretically there are savings when using US-based funds, specifically "Replicating these indexes with individual stocks would be costly, and there is an argument to be made for using highly liquid US-listed ETFs to get the same exposure"

I think of that as a reason to use VTS and VEU instead, not IOO.  Neither IOO nor WXOZ are super-liquid.

However, if you want an all-in-one that tries to match the overall Developed-World (ex-Australia) market return WXOZ is where I lean (although personally I hold my Large Cap World ex-Australia allocation in Super).

If you have a strong view that the top 100 world companies will outperform their broader market on a risk-adjusted basis I guess that could be a reason.  Historically it has tended to be the opposite, though, and you still have plenty of those top 100 companies in WXOZ (I estimate 40-50% of WXOZ).

dungoofed

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Re: Australian Investing Thread
« Reply #324 on: October 23, 2014, 08:50:39 PM »
Awesome - thanks. Now I just need to think whether over the long term I'll be better off selling the IOO I already have in exchange for WXOZ or just start accumulating WXOZ and leave the IOO as-is. Leaning towards ripping the proverbial bandaid off.

superannuationfreak

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Re: Australian Investing Thread
« Reply #325 on: October 23, 2014, 09:11:53 PM »
Awesome - thanks. Now I just need to think whether over the long term I'll be better off selling the IOO I already have in exchange for WXOZ or just start accumulating WXOZ and leave the IOO as-is. Leaning towards ripping the proverbial bandaid off.

If you've had IOO a while then capital gains tax could bite so check your cost basis (~buy price) vs current price.  I'm not convinced there's so much between them that it's worth a substantial premature tax hit, particularly if you are targeting early retirement where your tax rate may be lower than as while worker.  There are also costs in the round-trip.

dungoofed

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Re: Australian Investing Thread
« Reply #326 on: October 24, 2014, 02:39:45 AM »
Actually, I decided to keep IOO and instead invest in WXOZ going forward. The CGT is one issue but not the main determinant. Basically I'm trying to build something to track these things, and I think this would be a fair example of "one asset class, multiple tickers."

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« Reply #327 on: October 27, 2014, 07:38:17 PM »
any thoughts on the medibank IPO ?

I'm a strong proponent of indexing, but govt sales are usually good deals.  But I don't want to pay CGT while still a salaryman at 39% tax rate. 

I'm conflicted. 

edit: never mind: http://forum.mrmoneymustache.com/investor-alley/(australia)-medibank-private-ipo/
« Last Edit: October 27, 2014, 07:42:50 PM by This_Is_My_Username »

slothman

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Re: Australian Investing Thread
« Reply #328 on: October 27, 2014, 08:25:48 PM »
I'd also like to note that in both examples that you gave, the original company tax paid by the companies is always lost.
What we are talking about is just the withholding tax on dividends.

Makes Australian shares and fully franked dividends seem so much better and why I maintain a strong home bias in my investing.

Does this mean there's no difference whether the fund is US domiciled or AUS domiciled? Either way we get foreign income tax offset for the same amount?

potm

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Re: Australian Investing Thread
« Reply #329 on: October 27, 2014, 08:39:16 PM »
Does this mean there's no difference whether the fund is US domiciled or AUS domiciled? Either way we get foreign income tax offset for the same amount?

No, according to superannuation freak, the AUS fund you'll get the foreign tax offset for dividends paid by the underlying companies while the US fund will only get a foreign tax offset for the witholding tax from the dividend paid by the fund. The AUS fund won't have any withholding tax on the dividend.

slothman

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Re: Australian Investing Thread
« Reply #330 on: October 27, 2014, 08:56:05 PM »
Makes Australian shares and fully franked dividends seem so much better and why I maintain a strong home bias in my investing.

I look forward to being able to retire from full time work and live off a fully franked dividend stream. For the tax free threshold I'll be able to get the full 5-6% grossed up yields from my aussie LIC portfolio without paying any tax on it.

International ETFs would be for diversification purposes and I can't see myself being able to sustain a lifestyle off its dividends. 

Keen to get others thoughts on:
a) Whether the 5-6% grossed up yields will be sustainable going forward
b) What the purpose of international ETFs are for when considering early retirement

potm

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Re: Australian Investing Thread
« Reply #331 on: October 27, 2014, 09:45:33 PM »
Buying at today's prices will easily give you grossed up yields of 5-6% so unless company earnings drop significantly, you'll always be able to collect that yield on your purchase price.
If shares prices were to go up significantly, then it may be hard to keep achieving that level of yield on your purchases. Precisely why for anyone who is still in the accumulation phase, you want share prices to go down.

International shares are for diversification purposes and if you want to invest in industries that aren't available in Australia. Diversification is especially important if you intend to live overseas in retirement spending non-Australian currency.

Dividends make it convenient to produce an income stream for expenditure in retirement but that doesn't mean companies that pay low or no dividends should not be considered for investment. This is especially the case for overseas companies where the tax treatment is much better for capital gains than dividends.

bigchrisb

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Re: Australian Investing Thread
« Reply #332 on: October 27, 2014, 09:51:24 PM »
Does this mean there's no difference whether the fund is US domiciled or AUS domiciled? Either way we get foreign income tax offset for the same amount?

No, according to superannuation freak, the AUS fund you'll get the foreign tax offset for dividends paid by the underlying companies while the US fund will only get a foreign tax offset for the witholding tax from the dividend paid by the fund. The AUS fund won't have any withholding tax on the dividend.

I still struggle to get my head around the cost/benefit of this, and if it makes sense to pay the higher MER of this fund or not!

The way I see it:
WXOZ = 57% US stocks.  I think there will be no difference holding these through an Australian domiciled fund, or a US cross listed fund.  Lets represent the US exposure with VTS, which can be bought for 0.05% MER.  So, on that portion, we are behind (0.42-0.05)*.57 = 21.1 basis points. For the rest of world part, lets use VEU at .15% MER - so another (0.42-0.15)*.43 = 11.6 basis points.  i.e. on costs, we are 0.327% higher than an equivalent mix.

Yield on the non-US stocks is higher (2.5% for the blend, and about 1.83% for the US stocks, so working back off the ratio, the yield on the non-us stocks is about 3.34%). So, of our 2.5%, approx 1.4% comes from the non US stocks. Our fee difference was 0.327%.  So, we would need the "tax drag" from the non-US stocks to be greater than 23% 

I don't know what the actual number is, but I'm expecting it to be in a similar ballpark.  I think its worth watching the fee ratio or yields on the relevant funds over time to see if this becomes more compelling one way or the other, but in the meantime I struggle to split them?

potm

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Re: Australian Investing Thread
« Reply #333 on: October 27, 2014, 10:32:14 PM »
Thanks for doing the maths.
Found this article for withholding rates from a US perspective.
I would imagine the same rate would apply to Australia for most cases.
http://seekingalpha.com/article/248039-withholding-tax-rates-by-country-for-foreign-stock-dividends
Some of the bigger countries:

UK: 0%
Germany 26.4%
Japan: 10%
Canada: 15%
France: 25%

I guess it would be possible to get an approximately figure if you look more closely at the allocation of stocks. Another thing to consider is if any reduced withholding is available to the funds like how we can get the withholding for US stocks reduced to 15% by filling out a form.

Also your point about full vs partial replication earlier needs to be taken into consideration as well as the lost franking credits on VEU.
WXOZ being World ex-Aus also gives it a plus over having to buy both VEU and VTS, simplfying the portfolio and reducing brokerage cost.

bigchrisb

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Re: Australian Investing Thread
« Reply #334 on: October 27, 2014, 11:10:59 PM »
Thanks, that's useful data!  Based on a weighted average, that comes out at about 16% for the constituents of VEU. That's already accounting for franking credits with 30% of Australian tax lost, but does not account for any tax treaty discounts done within the fund (i.e. its probably a worst case assessment).

Based on that, there isn't much in it, but owning a combination of cross listed funds is marginally cheaper.  That said, the difference is so small that if you already own one, its certainly not worth paying capital gains to change!!

potm

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Re: Australian Investing Thread
« Reply #335 on: October 27, 2014, 11:42:31 PM »
Is anyone here buying US ETF's directly from US exchanges ie VT, VOO etc?  If so, what broker are you using?

I've recently started this with optionsxpress.  As I'm not planning to purchase/trade frequently they were better value for me (interactive brokers have a minimum $10 per month but their fees are very low so they're very good value if you are purchasing every month, less so if purchasing only a couple of times per year).

They offered me five free trades and live data if I funded my account ($500 minimum) within five days.  They also have an Australian bank account you can transfer into and the foreign exchange spread was surprisingly reasonable (0.5 - 1c rather than the 3% or so with an Australian bank).  However they will only send out wire transfers in USD (and not to third parties such as ozforex) so think about having a plan to get the money back in a cost-effective manner.  For my needs Citibank will probably suffice there.

Digging back through the thread I found this. Can you please tell us why you are buying US listed ETFs. Is it for exposure you can't gain on the ASX or is there another reason?
Also just FYI interactive brokers provides some very good foreign exchange rates, basically the wholesale market rates and you can withdraw cash into your Australian bank account free of charge.

Thanks, that's useful data!  Based on a weighted average, that comes out at about 16% for the constituents of VEU. That's already accounting for franking credits with 30% of Australian tax lost, but does not account for any tax treaty discounts done within the fund (i.e. its probably a worst case assessment).

Based on that, there isn't much in it, but owning a combination of cross listed funds is marginally cheaper.  That said, the difference is so small that if you already own one, its certainly not worth paying capital gains to change!!

So did you account for the franking credit separately? If there is a 30% withholding tax lost from Australian dividends by VEU  then that is off the dividend amount paid, not including the franking credit. If I understand things correctly Australian shares in VEU will pay a dividend to the fund and have 30% withheld so for a 70 dollar dividend, you will only receive 49 dollars (actually less with US withholding as well but u can claim that back). If you held the Australian shares in an Australian fund then you would receive the full 70 dollar dividend along with 30 dollars franking credit so 100 all up.

I think we did the calculation for the benefit of the franking credit lost but that was in some other thread.

bigchrisb

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Re: Australian Investing Thread
« Reply #336 on: October 28, 2014, 12:08:38 AM »

So did you account for the franking credit separately? If there is a 30% withholding tax lost from Australian dividends by VEU  then that is off the dividend amount paid, not including the franking credit. If I understand things correctly Australian shares in VEU will pay a dividend to the fund and have 30% withheld so for a 70 dollar dividend, you will only receive 49 dollars (actually less with US withholding as well but u can claim that back). If you held the Australian shares in an Australian fund then you would receive the full 70 dollar dividend along with 30 dollars franking credit so 100 all up.

I think we did the calculation for the benefit of the franking credit lost but that was in some other thread.

That 30% is the 30% company tax rate.  If you are an Australian investor, you get it back.  If you are not, you don't.  Unfranked dividends are withed at 15% for treaty countries, and nothing is withed for conduit foreign income.  See https://www.ato.gov.au/Individuals/International-tax-for-individuals/Investing-in-Australia/Receiving-interest,-unfranked-dividends-and-royalties/


slothman

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Re: Australian Investing Thread
« Reply #337 on: October 28, 2014, 12:34:57 AM »
Diversification is especially important if you intend to live overseas in retirement spending non-Australian currency.
I intend to retire early overseas in a low cost country whilst my portfolio continues to compound, then move back to OZ. If I buy an ETF like WXOZ, wouldn't the dividends get deposited to an Australian bank account which I'll need to convert to foreign currency? Or are you suggesting to open an offshore trading account?

potm

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Re: Australian Investing Thread
« Reply #338 on: October 28, 2014, 12:41:35 AM »

That 30% is the 30% company tax rate.  If you are an Australian investor, you get it back.  If you are not, you don't.  Unfranked dividends are withed at 15% for treaty countries, and nothing is withed for conduit foreign income.  See https://www.ato.gov.au/Individuals/International-tax-for-individuals/Investing-in-Australia/Receiving-interest,-unfranked-dividends-and-royalties/


My mistake, forgot that there is no withholding on fully franked dividends. So it's only the unfranked dividends from Australian companies which will incur a withholding tax loss that can't be reclaimed while the fully franked dividends we'll be losing the franking credit offsets from Australian holdings within VEU.

Diversification is especially important if you intend to live overseas in retirement spending non-Australian currency.
I intend to retire early overseas in a low cost country whilst my portfolio continues to compound, then move back to OZ. If I buy an ETF like WXOZ, wouldn't the dividends get deposited to an Australian bank account which I'll need to convert to foreign currency? Or are you suggesting to open an offshore trading account?

I mean diversification is important because if you are living off overseas currency and only hold Australian assets and AUD income then you are exposed to fluctuations in the exchange rate.
Exchanging money can be done quite easily with a citibank plus account, no guarantees such an account will always exist though but I'm sure they'll always be some way to exchange your money without too much cost. There's really no way to avoid exchanging money unless you totally match your income and expenditure currencies.

superannuationfreak

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Re: Australian Investing Thread
« Reply #339 on: October 29, 2014, 04:44:10 AM »
Is anyone here buying US ETF's directly from US exchanges ie VT, VOO etc?  If so, what broker are you using?

I've recently started this with optionsxpress.  As I'm not planning to purchase/trade frequently they were better value for me (interactive brokers have a minimum $10 per month but their fees are very low so they're very good value if you are purchasing every month, less so if purchasing only a couple of times per year).

They offered me five free trades and live data if I funded my account ($500 minimum) within five days.  They also have an Australian bank account you can transfer into and the foreign exchange spread was surprisingly reasonable (0.5 - 1c rather than the 3% or so with an Australian bank).  However they will only send out wire transfers in USD (and not to third parties such as ozforex) so think about having a plan to get the money back in a cost-effective manner.  For my needs Citibank will probably suffice there.

Digging back through the thread I found this. Can you please tell us why you are buying US listed ETFs. Is it for exposure you can't gain on the ASX or is there another reason?
Also just FYI interactive brokers provides some very good foreign exchange rates, basically the wholesale market rates and you can withdraw cash into your Australian bank account free of charge.

The main reason is that I had a meaningful lump sum to invest and there is a reasonable probability I'll live in the US in the future.  I wanted to reduce the amount of funds that I'd need to sell off if that eventuates (as the IRS will often treat Australian domiciled funds as Passive Foreign Investment Companies).  It is likely I could have used the cross-listed funds but I'd rather not take the risk.  It was also an excuse to tilt my allocation towards US Small-Value and World ex-US Small Cap so I also gained exposure I can't really gain on the ASX.

Interactive Brokers would probably have been fine too.  However I only expect to buy once or twice per year and didn't want to pay minimum monthly fees.  Once the question mark over country of residence is resolved in a few years I'll likely either move to Schwab or Vanguard (if in the US) or focus more on Superannuation and just more-or-less leave the US brokerage account to accumulate (if in Australia).

I seem to recall I also did a back-of-the-envelope calculation on withholding taxes and found at current distribution rates that VTS/VEU is probably a bit cheaper than WXOZ even with taxation implications.  But there's not a huge amount in it.

perthdude

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Re: Australian Investing Thread
« Reply #340 on: November 05, 2014, 06:59:30 PM »
On a slightly different (than ETF's) thread, has anyone looked at FGX? It's a recently listed LIC that invests in a 14-15 Australian small and mid-cap managed funds. All of the underlying fund managers have waived their management fees and performance fees, and the LIC donates 1% of its assets each year to charity (so basically has a management fee of 1% p/a). Geoff Wilson set it up and is on the Board.

For me, the main benefit was to get exposure to a number of different fund managers for 1% p/a, and don't need to invest the normal $50k minimum to invest in the funds, along with a management fee less than what you'd get if you invested in the underlying funds.

I put some funds in soon after listing, and will keep an eye on it to see if it trades under NTA.

This_Is_My_Username

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« Reply #341 on: November 05, 2014, 07:08:38 PM »
a fund of funds?

perthdude

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Re: Australian Investing Thread
« Reply #342 on: November 05, 2014, 08:23:52 PM »
Yep, exactly

superannuationfreak

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Re: Australian Investing Thread
« Reply #343 on: November 06, 2014, 04:27:00 AM »
On a slightly different (than ETF's) thread, has anyone looked at FGX? It's a recently listed LIC that invests in a 14-15 Australian small and mid-cap managed funds. All of the underlying fund managers have waived their management fees and performance fees, and the LIC donates 1% of its assets each year to charity (so basically has a management fee of 1% p/a). Geoff Wilson set it up and is on the Board.

For me, the main benefit was to get exposure to a number of different fund managers for 1% p/a, and don't need to invest the normal $50k minimum to invest in the funds, along with a management fee less than what you'd get if you invested in the underlying funds.

I put some funds in soon after listing, and will keep an eye on it to see if it trades under NTA.

I think it is credible but primarily because there are no cheap small or mid-cap index products that I trust.  The Small Ordinaries Index seems to have been outperformed reliably by a large proportion of funds and the Realindex Wholesale small cap fund costs 0.86-0.89%, not far from 1%.  This fund includes some apparently successful funds and managers that are otherwise closed to new purchases.

There are a few things to keep an eye on
-If buying after listing note that there are about as many outstanding options at $1.10 as there are shares.  So if the LIC performs well there will be potentially material dilution of equity in just under two years (you can buy the options at around 5c each to be in the same position as those who bought during listing).
-I'm hopeful the underlying funds and the allocation to them will stay 'on style' but the LIC management are permitted to follow any strategy they wish.  It is possible the allocation towards large caps will creep up (there is a little already) and so diversification benefits will be reduced.
-There isn't that much information available on some of the underlying funds so it is unclear how tax efficient they are.  Some of the strategies such as long-short portfolios may have a fair amount of turnover.  While the dividends will likely be franked, the LIC itself still pays corporate taxes on distributions and capital gains distributed so turnover in the underlying funds may be a drag on returns.
-As competition increases in the small and mid-cap sectors cheaper options should arrive.  We could be 'stuck' with this fund when a RAFI small cap ETF or ASX ex-20 ETF (excluding the top 20 shares) comes out, for instance, due to capital gains tax implications.  In this 'worst' case we're donating 1% p.a. to children's charities in lieu of fees so if the fund is performing adequately it would be hard for me to feel particularly bad about it.

This is one of the recent LICs that I have some interest in.  The other is QVE, an ex-20 focused LIC from value-oriented manager with current fees around 0.85%+/-.  Most of the concerns are the same except that my instinct is that QVE will do more buying-and-holding than the underlying funds held by FGX, so my best guess is that it will suffer less drag from taxes.  With QVE it is a fee, though, not a charitable donation (which actually also improves the tax efficiency, sadly, as the donation reduces the taxes paid by FGX and so reduces the franking credits they distribute).

I actually prefer both of these to, for example, the Betashares fundamental ASX ETF QOZ which charges 0.40% p.a. including expenses and does experience a reasonable amount of turnover.  The reason is that for 0.40% I can get around 30% FGX or QVE plus 70% VAS and seems likely to be a more substantial 'tilt' to small and mid-caps or value while isolating fund turnover to the smaller component.  There goes my indexing cred!

AustralianMustachio

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Re: Australian Investing Thread
« Reply #344 on: November 11, 2014, 06:14:44 AM »
When people talk about turnover being high in a fund, and this being a bad thing, what is the direct upshot - capital gains tax having to be paid on the funds distribution amounts? So instead of franking credits, you get a sort of reverse situation? I'm struggling to see how else the capital gains would have to be paid if we just buy and hold index funds (i.e. don't sell so no capital gains). Maybe I'm totally misunderstanding it.

In response to superannuationfreak's much earlier post - the Market Vectors website states that the turnover for MVW, the equal weighted ASX index fund, is around 25% and also claims this is a normal amount. As I described above, I'm not sure what the direct implications of this are.

Lastly, what do people think of QUAL - another Market Vectors ETF product based on a deliberately created "value index" of large companies on the ASX. The hypothetical performance of such an index over the last 30 odd years is very impressive. I'm a bit skeptical of course.

Also, it claims to be an ETF, but I can't seem to get a price performance chart of it on nabtrade or google finance. Maybe it's because it's just listed

AustralianMustachio

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Re: Australian Investing Thread
« Reply #345 on: November 11, 2014, 06:21:45 AM »
I'm mostly interested in these funds such as MVW to try to address the concentration risk in the ASX200 of banks and miners. Iron ore price changes recently have showed what can happen to mining companies, even large ones like BHP and RIO. And falling AUD has had a similar effects on banks (though that's mostly reversed now). Then there's the Murray Enquiry and it's effects on the larger banks vs the regionals - with all this, the top 10 companies in the ASX, which make up more than 50% of the index, don't seem so bright and unbreakable. Considering the incredible run the banks have had over the last few years, it's hardly surprising.

perthdude

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Re: Australian Investing Thread
« Reply #346 on: November 11, 2014, 09:12:11 PM »
I agree AM; I for one like the sound of MVW, the thing that has turned me against VHY / VAS etc is the 40%+ exposure to 5 or 6 companies. I don't hold either, but have some IVV and IEU for international diversification.

And in terms of high turnover in a LIC, the negative is obviously that the funds assets are chewed up by trading costs and tax. But yes, if you pay tax you get franking credits, so guess that is an upshot. For an international fund with high turnover you won't get the benefit of the franking credits though. And with a normal fund (i.e. unlisted) then you get amounts of capital gains that you need to declare in your tax return at the end of the year.

The Falcon

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Re: Australian Investing Thread
« Reply #347 on: November 16, 2014, 03:04:02 PM »
Guys the issue with churn is constant tax events, high turnover means CGT 12 month holding discount is not applied. This can absolutely hammer after tax performance.

potm

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Re: Australian Investing Thread
« Reply #348 on: November 20, 2014, 03:13:58 PM »
Good news people!
Vanguard have some new ETFs. Solves the tax problem we were talking about earlier.
https://www.vanguardinvestments.com.au/retail/ret/investments/etfdetailVISIFE.jsp

Also a hedged version available. World ex Aus, not a CDI, everything we asked for. The MER is a little high compared to the US ones but this is Australia and .18 isn't too bad. Now all we need is the dow at 10000 and the AUD at 1.05 again haha.

bigchrisb

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Re: Australian Investing Thread
« Reply #349 on: November 20, 2014, 04:18:00 PM »
Good news people!
Vanguard have some new ETFs. Solves the tax problem we were talking about earlier.
https://www.vanguardinvestments.com.au/retail/ret/investments/etfdetailVISIFE.jsp

Also a hedged version available. World ex Aus, not a CDI, everything we asked for. The MER is a little high compared to the US ones but this is Australia and .18 isn't too bad. Now all we need is the dow at 10000 and the AUD at 1.05 again haha.

Yep, a step in the right direction, for sure.  Bit annoying that it is developed markets only, and there isn't a low cost way to get emerging markets exposure at the moment (about 0.5%), or wear the cross listing issues with the emerging component in VEU.