Our guest today is Ilan Israelstam, co-founder of Australian investment company BetaShares. You may have heard of BetaShares as one of the leading managers of ETFs with over 44 ETF products for investors to invest in and managing more than 5.4 billion dollars of assets.
One of the most talked about ETFs in 2018 has been the soon to be released A200 ETF from BetaShares which boasts an incredible MER of 0.07%. This ETF covers the top 200 companies in the Australian market and will become the lowest management fee of any Australian ETF ever!
In this episode, we talk about:
- The new A200 ETF
- Ethical ETFs
- The role active management plays in investing
Hi Aussie firebug
If you sold your VAS and bought the Beta shares equivalent A200, would this be a capital gains event that you would need to pay tax on and would this substantially offset any gain you might have with the lower expense ratio?
How would this differ with regard to the tax incurred if you held VAS in superannuation and sold it to buy the beta shares equivalent in super?
I don’t plan to sell VAS. Just start buying the A200 instead. They will both make up my Australian weighting.
I’m not sure about the Super question. I’m currently doing more research in the Super area to help answer these types of questions.
I haven’t listened yet, so you may cover it in the discussion, but it’s worth noting that VAS tracks the ASX300, not 200. Those switching to A200 might want to consider some separate (perhaps even actively managed) exposure to smaller companies.
Mate, have a listen, the bottom 100 companies in the asx 300 make up less than 3 percent of the total in VAS so not much diversification there. Better going for a separate small caps strategy.
Umm a separate small caps strategy is actually what I suggested in my comment. But yes, it’s in my queue to listen.
Yeah but also for those in VAS as well, they should consider a small cap diversification strategy too
Great episode! I’m really liking BetaShares low cost offerings. Gives investors more options rather than just using Vanguard, Fidelity, Blackrock etc.
Competition is always good!
Are you not hesitant to be one of the first ones to jump in to the fund? Maybe I am being to sceptical wanting to let a few others try it out first. Is it really only down to fees? You also have vanguards structure where it is owned by its funds, which are in turned owned by the shareholders. I.e. you, me and any other investor.
Does Betashares do any competitive international index funds? Most of there other funds seem to have quite high fees, they also give me a very Gimicky vibe.. Some of the name of the funds… like ETHI? or BEAR?.. No thanks.
Good point that you made about the website, however I kind of like vanguards website for that exact reason. 🙂
Great podcasts. I’ve listened to them all, keep up the awesome work!
Good points YML.
It is all about the management fees for me.
Vanguards structure is great but even with BetaShares, I still own the shares. BetaShares the company is separated from the custodial account which is structured in a way to only benefit the unitholders aka me as the investor. The worst case scenario is that BetaShares goes bust and I would have to sell my units and ‘cash out’. In reality, the assets would most likely be picked up by another managed fund or investment company.
And it’s not like we’re talking only 1 or two basis points difference either. VAS is currently at 0.14%. A200 would literally be half that at 0.07%.
Great Podcast, I like the idea of A200 but the other etf’s they offer and expensive and very sector targeted. Do you guys think that betashare could run A200 at below cost and offset it by the more expensive etf offerings? I am hopeful Vanguard can at least drop below 0.10
I hope Vanguard responds too. Ilan mentions in the podcast that BetaShares are able to offer 0.07% because they now have the scale… You’d think Vanguard would have no scale issues to offer VAS lower than 0.14% but who really knows?
Really int. I have an AFIC / VGS split and thinking of putting future $$ into a200.
What do you think of the factors below? Dividends are a big deal for us – so having lower dividends for the first few years might be enough to put us off for now… Still processing…
What else to consider?
There’s a few other things you should consider before investing in A200:
The Bid/Ask spread is the difference in share price between buying and selling an ETF. A market maker exists to create and redeem ETF units. They make a profit by paying a little less for units that they buy than units that they sell. Kind of like how when you travel the foreign exchange merchant will see you foreign notes for more than they will buy them back from you. Large, liquid ETFs tend to have a small bid/ask spread as there is high turnover and large secondary market (like how the spread between US dollars at your currency exchange is less than Chilean Pesos).
At the time of writing A200 has only been listed for one day, so we can’t determine it’s bid/ask spread, but it is something for investors to be mindful of. When we looked at STW, IOZ and VAS, their bid/ask spread was 0.04% to 0.09%.
Betashares has begun operation with a market capitalisation of almost $50m, much higher than the standard ETF issue of around $2m. We assume some institutional investors have got on board early, and hopefully this helps to provide adequate liquidity.
Dividend yield may initially be less than its competitors
We often see new ETFs come to market and have a dividend yield slightly lower than expected during the first couple of years of operation. This is due to timing of fund flows and dividends. As a fund goes from a very small size to a much larger size its growth in the first couple of years is exponential.
With distributions paid quarterly, a dividend received by the fund at the start of the quarter may then need to be paid to a much larger pool of investors at the end of the quarter, meaning the dividend yield for all investors becomes less.
To provide an example. If CBA pay a dividend of 5% at the start of the quarter, and the fund holds $1,000 worth of CBA shares, they will receive a dividend of $50. If by the end of the quarter they hold $1,500 worth of CBA shares (as more investors have contributed to the fund), they will still pay out $50 worth of dividend, but the income yield to investors will be $50/$1,500 = 3.33%.
We don’t expect in reality to see examples so extreme, but investors relying on income distributions should be aware that yield may be slightly lower initially. This won’t affect overall performance (share price + dividends), just income yield.
Excellent info Jenar. As someone who will be investing in A200, this is good to know.
“investors relying on income distributions should be aware that yield may be slightly lower initially. This won’t affect overall performance (share price + dividends), just income yield.”
I don’t understand the second sentence. If early investors in a200 receive lower dividends initially (due to the growth of the fund in a short window), how does this not affect performance measured by share price + dividends?
Oops – forgot to provide the source for the quote
I recently had to decide between A200 and VAS for my first Aussie ETF. Ended up going with VAS, even though I know it’s probably an illogical decision. I just didn’t feel very comfortable putting a long-term investment into a new product from a relatively new company (especially when many of their other products looked kinda gimmicky). Hopefully Vanguard will lower VAS fees at some point, though it’s been a while now with no response from them 🤞
Anyway, thanks for the awesome content – I’ve learned heaps from your blog & podcasts!
Know worries JR, I’m glad you’re enjoying the blog.
Thanks for this informative podcast. I really appreciate that you guys talked about ethical and sustainable investing as well, as that is something I am particularly interested in. Id rather not make money through arms sales, cigarette sales and nuclear energy.
Its hard to choose though what funds to go for, both Betashares and Vanguard offer sustainabble ETFs, and while Vanguard management fee is substantially lower Betashares fund actually performed better last year.. so what to decide. I guess performance though can never be absolutely predicted while management fees stay the same.