Is A200 ETF the gateway to ASX stocks?

  • October 28, 2020 05:55 PM AEDT
  • Kunal Sawhney
    CEO Kunal Sawhney
    2781 Posts

    Kunal Sawhney is founder & CEO at Kalkine and is a richly experienced and accomplished financial professional with a wealth of knowledge in the Australian Equities Market. Kunal obtained a Master of Business Administration degree from University of T...

Is A200 ETF the gateway to ASX stocks?

Summary

  • An ETF is an exchange-traded fund consisting of several securities, including stocks, and bonds, among others.
  • An index-based ETF is an excellent option to invest in the broader market like A200 ETF for the Australian market, replicating S&P/ASX 200.
  • Some popular ETFs in the Australian market are Ishares Core S&P/ASX 200 ETF by Blackrock and Nasdaq 100 ETF by BetaShares.
  • The best ETF choice comes down to the management fees as all ETFs are designed to deliver the same performance as that of the benchmark.
Gold MTF non-AMP

While investing in a stock market, more often than not, an investor comes across multiple parameter choices to select a security. It may be based on market cap, sector, valuation/growth, dividend yield and the list goes on.

However, another way of investing that is gaining popularity, is through index-based ETFs. An Exchange-traded fund (ETF) is a financial product that consists of securities such as stocks, bonds, commodities. They are listed on the exchange and can be traded like shares which makes it a preferred choice among investors over other non-tradable investments.  

An index-based ETF consists of all the securities in the respective index with the same weightage. This helps the ETF to replicate the return of an Index and can be held in the form of a security in a Demat account.

Some popular ETFs in the Australian stock market 

BetaShares is a leading fund manager in Australia offering some of the biggest ETFs in Australia including BetaShares Australia 200 ETF(ASX:A200) which replicates S&P/ASX 200. Blackrock also has its ETF to track the ASX200 index, Ishares Core S&P/ASX 200 ETF (ASX:IOZ).

For the long-term investors, holding on to A200 ETF is a better option than going long in ASX 200 futures primarily due to the rollover cost.

For global exposure, Nasdaq-100-based BetaShares Nasdaq 100 ETF (ASX:NDQ) is also listed on the Australian stock exchange (ASX). Another popular FANG ETF is also listed on the ASX as ETFS FANG+ ETF (ASX:FANG) by ETF Securities Australia which replicates the NYSE®FANG+™ Index.

State street global advisors have their S&P500-based ETF for the Australian market (ASX:SPY). 

Which ASX200 ETF is better?

As discussed earlier, an ETF based on the index would have the same shares in the same weightage. That is the only way an ETF can replicate its underlying index. 

As every ETF is designed to deliver the same return as the underlying index, selecting the best exchange-traded fund comes down to the cost structure or the management fees.

The ASX 200 graph and an ETF graph can be compared to gauge the similarity in the performance by both instruments.

The top holdings of the biggest positions in ASX200 are

  1. CSL Limited (ASX:CSL)
  2. Commonwealth Bank of Australia (ASX:CBA)
  3. BHP Group Ltd (ASX:BHP)
  4. Westpac Banking Corp (ASX:WBC)
  5. National Australia Bank Ltd (ASX:NAB)
  6. Australia and New Zealand Banking Group (ASX:ANZ)
  7. Wesfarmers Ltd (ASX:WES)
  8. Woolworths Group Ltd (ASX:WOW)
  9. Macquarie Group Ltd (ASX:MQG)
  10. Transurban Group (ASX:TCL)

Management fees for the ETFs

At the core, an index-based ETF is a passively managed fund unlike other pooled investments like a mutual fund which is an actively managed fund. Due to this primary difference, there is a huge difference in the cost structure of both, and therefore an average ETF cost is way lower than, say a mutual fund. 

 


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