Exposure to a portfolio of top local stocks in an index fund now costs just seven basis points (0.07 per cent), with the listing last week of BetaShares Australia 200 ETF. The new fund undercuts the management fee on Vanguard’s Australian Shares Index, previously the cheapest ETF on the market, by half.
BetaShares is working with a German “index engineer” Solactive, which has been in the market since 2007 and has a reputation for aggressive pricing.
The Solactive Australia 200 Index tracks the performance of the 200 largest companies by market capitalisation on the ASX. It is a free-float market cap weighted index, which Solative says has been constructed to reduce turnover and increase liquidity.
The Solactive index will deliver similar returns to ETFs linked to S&P or other ASX 200 indexes, but at lower cost.
The Vanguard fund has a management fee of 14 bps, iShares Core S&P/ASX 200 ETF has a management fee of 15 bps, and State Street’s SPDR S&P/ASX 200 has a fee of 19 bps.
These are among the biggest ETFs on the market. The Vanguard fund has $2.6 billion of funds under management, the iShares fund $1.1 billion and the State Street fund $3.7 billion.
BetaShares has worked with Solactive before, developing an index for the BetaShares Australian Bank Sector Floating Rate Bond ETF, which was listed on the ASX last June.
The new fund will pay distributions quarterly. Its ASX code is A200.
As would be expected with an index fund, BetaShares Australia 200 ETF is heavy on big banks, miners and retailers. Currently, the top 10 exposures include Commonwealth Bank, BHP, Westpac, National Australia Bank, ANZ, CSL, Wesfarmers, Telstra, Woolworths and Macquarie Group.
BetaShares chief executive Alex Vynokur says the low fee is a “game-changer for the Australian wealth management industry.”
Vynokur points out that a $10,000 Australian share portfolio growing at 5 per cent a year over 40 years would grow to $68,547 in a fund with a management fee of seven basis points. If the money was invested in an active fund with an average fee of 1.55 per cent, also growing at 5 per cent a year over 40 years, it would grow to $38,835.