Author Topic: Need Advice on ETFs  (Read 5163 times)

Twenty4Me

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Need Advice on ETFs
« on: July 03, 2015, 11:26:51 AM »
Recently, a tax free savings plan thing was launched by the government here in South Africa. We can invest up to R30'000 per year (to a limit of R500'000 over the course of your life), without paying any tax on capital gains, dividends, etc. This TFSP is limited to savings accounts, bonds, and ETFs.

I've been looking at the EFTs, but since Vanguard isn't an option here, I'm a little lost at what I should be looking for when it comes to these funds (I've never invested in the stock market before). Through the online platform that I've just registered with, there are 42 different ETFs available to choose from. What should I be looking for to know that I'm choosing the right one (or few)?

Any advice or pointers would be greatly appreciated. Let me know if you need more info like ETF names, etc.

Thanks!

brainfart

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Re: Need Advice on ETFs
« Reply #1 on: July 03, 2015, 12:09:52 PM »
Can you copy the list and post it? Name, fees, total expense ratio, dividends reinvested or not, replicating or swap based etc., everything that is available.

A common, simple way to get started is MSCI World plus some Emerging Markets.

Twenty4Me

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Re: Need Advice on ETFs
« Reply #2 on: July 03, 2015, 01:12:22 PM »
Can you copy the list and post it? Name, fees, total expense ratio, dividends reinvested or not, replicating or swap based etc., everything that is available.

A common, simple way to get started is MSCI World plus some Emerging Markets.

The names are as follows:
Bettabeta Be Green ETF (BGREEN)
Bettabeta Equally Weighted Top 40 ETF (BBET40)
DB X-Trackers Col in Japan ETF (DBXJP)
DB X-Trackers Col in USA EF (DBXUS)
DB X-Trackers Col in WLD ETF (DBXWD)
DB X-Trackers DJ Euro Stoxx 50 ETF (DBXEU)
Db X-Trackers FTSE 100 ETF (DBXUK)
Erafi Overall SA Index ETF (RAFISA)
Erafi SA Financial 15 Idx ETF (RAFFIN)
Erafi SA Industrial 25 Idx ETF (RAFIND)
Erafi SA Resource 20 Idx ETF (RAFRES)
Grindrod DivTrax ETF (DIVTRX)
Grindrod LowVol Trax ETF (LVLTRX)
Grindrod Property Index Tracker Closed Fund (PREFTX)
Grindrod Property Index Tracker SAPY ETF (PTXSPY)
Grindrod Property Index Tracker Top Ten ETF (PTXTEN)
Mapps Protect (MAPPSP)
Newfunds Equity Momentum ETF (NFEMOM)
Newfunds Govi ETF (NFGOVI)
Newfunds Ilbi ETF (NFILBI)
Newfunds Mapps Growth ETF (MAPPSG)
Newfunds NewSA Index ETF (NEWFSA)
NewFunds S&P GIVI SA Financial 15 Index (GIVFIN)
NewFunds S&P GIVI SA Industrial 25 Index (GIVIND)
NewFunds S&F GIVI SA Resource 15 Index (GIVRES)
NewFunds S&P GIVI SA Top 50 Index (GIVISA)
Newfunds Shariah To40 ETF (NFSH40)
Newfunds Swix 40 ETF (NFSWIX)
Newfunds TRACI 3 Month ETF (NFTRCI)
RMB Inflation ETF (RMBINF)
RMB Mid Cap ETF (RMBMID)
RMB Top 40 ETF (RMBT40)
Satrix 40 Trust (STX40)
Satrix Div Plus Portfolio (STXDIV)
Satrix FINI Index Tracker Fund (STXFIN)
Satrix INDI Index Tracker Fund (STXIND)
Satrix Rafi 40 Total (STXRAF)
Satrix Resi Portfolio (STXRES)
Satrix Swix Top 40 ETF (STXSWX)
Stanlib SA Property ETF (STPROP)
Stanlib Swix40 ETF (STANSX)
Stanlib Top40 ETF (STAN40)

This is the list that I printed out earlier.

From your question, I'm guessing there are additional fees to what was listed on the online platform? The online platform listed the following fees:

Broker Commission : 0.25%
Settlement and Administration : 0.075% of value traded
Investor Protection Levy and Administration : 0.0002% of value traded
Value-added Tax (VAT) on Costs : 14% on brokerage settlement & investor protection levy
Telephone Trades : R50 per trade
Credit Card Charges : R1.60 + 2.3% of Rand value
Debit Order Charges : R4.50 per transaction
Secure Internet Deposit : R1.60 + 1.5% of Rand value

I'll research the other things you mentioned and get back to you those.

Twenty4Me

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Re: Need Advice on ETFs
« Reply #3 on: July 03, 2015, 02:40:33 PM »
Ok, so the online platform doesn't have the type of info you were asking about, just redirected me to google finance every time I clicked an icon on their site for a graph or news, so I just picked a random one and googled it.

NewFunds Equity Momentum (NFEMOM)

Morningstar.co.uk says that the annual management fee is 0.34% and not a whole lot else. But, it did give me an idea of who runs it, so I searched that and came up with this: http://etfcib.absa.co.za/Fund%20Documents/NewFunds%20Equity%20Momentum%20-%2031%20Mar%202015.pdf (it's a .pdf for March 2015), and by the looks of it, they reinvest the dividends, but let you know before it happens, so I'm not sure if it's typical or not. The website that I got the .pdf link from is this one: http://etfcib.absa.co.za/Products/Exchange%20Traded%20Funds/Equity/EquityMomentumETF/Pages/default.aspx

Anyways, the .pdf says the "TER" is 0.36% ..... is this the annual management fee that Morningstar was talking about? I'm thinking it is because the link that Morningstar gave for the website of this fund was outdated, so I'm guessing their info might not be 100% current on that either.

"replicating or swap based"? I'm not sure what that means exactly, so I'll do a search on it tomorrow and get back to you on that.

I'll spend some time this weekend looking these ETFs up. On the plus side, it seems like the ABSA site above will have the docs for about 8 of the ETFs in my list that I could immediately pick up, so I'm optimistic that the others are also going to be grouped similarly.

Lordy

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Re: Need Advice on ETFs
« Reply #4 on: July 03, 2015, 03:31:26 PM »
The question "replicated or swap" revolves around how the ETF is created. Replicated means that the fund actually goes out and buys the stock that are listed in the index. Swap means that they may own different stock but swap the performance/returns with a partner. The swap introduces some risk but ask least in the european market that is limited to 10%. Swap is usually a little cheaper since they have less transaction costs. Some operators offer replication only, some swap only (I believe DB X-Tracker is one) and some have a mix available.

I only recognize the DB X-Tracker ones and the WLD seems to replicate MSCI World which is a good starting point. I can't seem to find any Emerging Markets fund though which is a bit of a pity.

For your research I would suggest that you try to find out the following things about each of them:
- Name of Index tracked
- Replication or Swap
- TER (annual cost in percent, should be somewhere between 0.20 and 0.75)
- Use of dividends (distributing or reinvesting, this may have tax implications)

If you post this, people here should be able to give you some solid advice.

brainfart

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Re: Need Advice on ETFs
« Reply #5 on: July 03, 2015, 03:43:02 PM »
Only name that sounds familiar to me (I'm from Europe) is db xtrackers, from Deutsche Bank which is relatively common in Europe.
DB X-Trackers Col in WLD ETF (DBXWD) for example is an ETF for the MSCI World index.

http://www.thebestockbroking.co.za/thebesec/research_reports/Kick-Start-Approved-ETFs.pdf gives a very short description of every ETF.

Of course I don't know where exactly you want to invest your money, but this would be my first choice: MSCI World is where I (and many buy and hold investors in my corner of the world) put most of their money. Lots of diversification in one ETF, about 1600 stocks and 57% or so USA.
Without a doubt many here will disagree since investing only in the US seems to be very popular here.

Quote
The online platform listed the following fees:

Broker Commission : 0.25%
Settlement and Administration : 0.075% of value traded
Investor Protection Levy and Administration : 0.0002% of value traded
Value-added Tax (VAT) on Costs : 14% on brokerage settlement & investor protection levy
Telephone Trades : R50 per trade
Credit Card Charges : R1.60 + 2.3% of Rand value
Debit Order Charges : R4.50 per transaction
Secure Internet Deposit : R1.60 + 1.5% of Rand value

This seems to be the same for every ETF, so what you want is a low TER.

> "replicating or swap based"? I'm not sure what that means exactly,

Do they really own all the stocks, or do they "simulate" the index performance with other financial instruments. Both have advantages and disadvantages.

Twenty4Me

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Re: Need Advice on ETFs
« Reply #6 on: July 05, 2015, 02:49:19 PM »
Ok, I'm going to put the TER in front for quicker scanning, and it is as follows:

0.75% Bettabeta Be Green ETF (BGREEN)
0.60% Bettabeta Equally Weighted Top 40 ETF (BBET40)
The website also notes a 1% transaction fee per redemption on the BBET40. This one actually sounds like there are additional other fees as well (page 18 of this .pdf file). An initial 0.5% administration fee and I don't know what all else. Nedbank, however, is to my mind, an expensive bank here, so I'm not keen to do their etf.

0.75% DB X-Trackers Col in Japan ETF (DBXJP)
0.75% DB X-Trackers Col in USA EF (DBXUS)
0.60% DB X-Trackers Col in WLD ETF (DBXWD)
0.75% DB X-Trackers DJ Euro Stoxx 50 ETF (DBXEU)
0.75% Db X-Trackers FTSE 100 ETF (DBXUK)
These are confusing. On this page, I get the fees above, but if I click through the list on the right, the fees are higher by between 0.08% - 0.11% on each of them. I'm not sure why this is so.

Erafi Overall SA Index ETF (RAFISA)
Erafi SA Financial 15 Idx ETF (RAFFIN)
Erafi SA Industrial 25 Idx ETF (RAFIND)
Erafi SA Resource 20 Idx ETF (RAFRES)
This page doesn't look good. Is it being phased out? Considering the "new proposed names" are listed below, I'm not sure these are even valid anymore. I wasn't able to find any TERs for these.

0.38% Grindrod DivTrax ETF (DIVTRX)
0.40% Grindrod LowVol Trax ETF (LVLTRX)
0.56% Grindrod Property Index Tracker Closed Fund (PREFTX)
0.58% Grindrod Property Index Tracker SAPY ETF (PTXSPY)
0.56% Grindrod Property Index Tracker Top Ten ETF (PTXTEN)
0.33% Mapps Protect (MAPPSP)
0.36% Newfunds Equity Momentum ETF (NFEMOM)
0.24% Newfunds Govi ETF (NFGOVI)
0.28% Newfunds Ilbi ETF (NFILBI)
0.33% Newfunds Mapps Growth ETF (MAPPSG)
0.60% Newfunds NewSA Index ETF (NEWFSA)

0.10% NewFunds S&P GIVI SA Financial 15 Index (GIVFIN)
0.11% NewFunds S&P GIVI SA Industrial 25 Index (GIVIND)
0.13% NewFunds S&F GIVI SA Resource 15 Index (GIVRES)
0.10% NewFunds S&P GIVI SA Top 50 Index (GIVISA)
The datasheets listed under these GIVI ETFs are all still called eRAFI as previously mentioned higher up the list, and while there's a recent GIVI brochure on their respective pages, there's no fees listed in them, only stating that the fees are low because they're passively managed and (this makes me laugh) talking about transparency. Even the FAQ of the brochure doesn't say what the fees are, just that there's no performance fees. I'm putting in the eRAFI fees, but to be honest, I don't know if they're still applicable.

0.30% Newfunds Shariah To40 ETF (NFSH40)
0.33% Newfunds Swix 40 ETF (NFSWIX)
0.20% Newfunds TRACI 3 Month ETF (NFTRCI)
This last one follows the money market and sees an average return just above 5%.

0.45% RMB Inflation ETF (RMBINF)
The above is excluding(?) an annual management premium of 0.36%
0.67% RMB Mid Cap ETF (RMBMID)
The above is excluding(?) an annual management premium of 0.5%
0.16% RMB Top 40 ETF (RMBT40)
The above is excluding(?) an annual management premium of 0.1%
So, what is the annual management premium? Is it separate from the TER, or does it come out of the TER to the manager of the ETF?

0.45% Satrix 40 Trust (STX40)
0.45% Satrix Div Plus Portfolio (STXDIV)
0.45% Satrix FINI Index Tracker Fund (STXFIN)
0.45% Satrix INDI Index Tracker Fund (STXIND)
0.52% Satrix Rafi 40 Total (STXRAF)
0.45% Satrix Resi Portfolio (STXRES)
0.45% Satrix Swix Top 40 ETF (STXSWX)
They do list an annual administration fee as well, but that looks like it's applicable only if you're buying directly from them.

0.32% Stanlib SA Property ETF (STPROP)
0.31% Stanlib Swix40 ETF (STANSX)
0.23% Stanlib Top40 ETF (STAN40)
Does the performance of the property ETF of this group look right to you? That seems really high for just a year.

I must say, looking up all of this stuff was pretty interesting, but I'm glad I don't have to do it again, lol. I still haven't discovered where to find out if they're replicating or swapped based, but it looks like they actually hold the stock just from the wording. That's not to say that I would know what wording they'd use if they didn't hold the stock.

ETA: It looks like the dividends of all of the above is reinvested.
« Last Edit: July 05, 2015, 02:52:55 PM by Twenty4Me »

brainfart

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Re: Need Advice on ETFs
« Reply #7 on: July 07, 2015, 03:40:22 PM »
Quote
I still haven't discovered where to find out if they're replicating or swapped based, but it looks like they actually hold the stock just from the wording. That's not to say that I would know what wording they'd use if they didn't hold the stock.

That should be hidden somewhere in the Key Investor Document for the respective ETF.

Have you already decided where you want to put your money? If e.g. you want to hold a broad stock index ETF you can discard a lot of them, obviously all that represent bonds, real estate etc., and then look at what's left.
Investing in a South African or other individual country ETF means a huge (home) bias, so you need a lot of additional investments to properly diversify.

Twenty4Me

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Re: Need Advice on ETFs
« Reply #8 on: July 08, 2015, 03:38:25 AM »
Quote
0.60% (0.68%?) DB X-Trackers Col in WLD ETF (DBXWD)
0.10% NewFunds S&P GIVI SA Top 50 Index (GIVISA)
0.32% Stanlib SA Property ETF (STPROP)

Those are the 3 that I'm considering.

Question:
What are the advantages or disadvantages of those ETFs that simulate the index performances instead of actually purchasing shares?

brainfart

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Re: Need Advice on ETFs
« Reply #9 on: July 08, 2015, 08:21:33 AM »
If you want to create a broad index ETF with a thousand or more stocks it is close to impossible to actually buy them all. The trading costs would be enormous. So often the index is only partly replicated by buying just the most important stocks. It might also be impossible to buy some of the stocks that are contained in the index.
Dividend payments are assumed to be automatically reinvested the day they are paid. In reality that will take time and create additional costs. All that friction will create tracking errors.

Lots of that can be avoided by the swap based ETFs. They can potentially track the index very closely, and they are often cheaper (lower TER). The main risk seems to be one of the partners in the swap deal going broke. I don't think that is a very common occurrence though.

I'm sure you can find lots of more detailed information by using the search function here, or on the vanguard site, google etc.

Twenty4Me

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Re: Need Advice on ETFs
« Reply #10 on: July 08, 2015, 10:17:56 AM »
Interesting. Thanks for the info and also for letting me know what to look for while deciding on these ETFs.

I wonder if it would be worth it at all, with those ETFs that only have 10 of 15 companies that they're tracking, to actually buy direct shares in those companies instead of going via the ETF. I realise that the ETFs can decide to drop a company when it starts to under-perform to their standards, but since they do make their lists available of which companies they're investing in (and in some cases the percentages as well), if it wouldn't make sense to also just invest directly too (while keeping a close eye on the ETFs details and changing accordingly should they drop one)?

brainfart

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Re: Need Advice on ETFs
« Reply #11 on: July 08, 2015, 02:20:15 PM »
Only in a large portfolio due to the trading costs.
But holding 10 or 20 individual stocks isn't as widely diversified as a broad index ETF.

Twenty4Me

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Re: Need Advice on ETFs
« Reply #12 on: July 09, 2015, 03:29:32 AM »
Gotcha. Thanks!