July 30, 2021
Rewind 20 years to 27 August 2001, when a new innovative investment product reached Australian shores – the exchange-traded fund (ETF). Investors’ horizons were suddenly opened, as they could now effectively add entire stock market indexes to their portfolio in a single trade, providing instant diversification.
The first two indexes investors could add to their portfolios were the S&P/ASX 200 Index and the S&P/ASX 50 Index. All they needed to do is to buy a single listed security – the SPDR® S&P®/ASX 200 Fund (STW) or the SPDR® S&P®/ASX 50 Fund (SFY). These ETFs track the performance of the 200 largest and 50 largest stocks on the Australian Securities Exchange, respectively.
Since we first brought ETFs to Australia 20 years ago, demand for ETFs has grown considerably. From two, there are now over 220 ETFs listed in Australia, with a market capitalisation of over A$113 billion1.
Now, the question most people want to ask is this: if I had been forward-thinking enough to put $10,000 into each ETF, how much would I have today?
As of June 30, 2021, that $10,000 in the SPDR® S&P®/ASX 200 Fund (STW) would have turned into $48,789. Meanwhile, the $10,000 in the SPDR® S&P®/ASX 50 Fund (SFY) would be worth $46,230, assuming all distributions from the funds were reinvested.
Source: State Street Global Advisors, as at 30 June 2021.
Past Performance is not a reliable indicator of future results. Total returns are historical and include change in share value and reinvestment of dividends and capital gains, if any. Cumulative total returns are reported as of the period indicated.
Investing in either ETF at inception would have almost quadrupled any initial outlay. This is in line with the performance of the S&P/ASX 200 and the S&P/ASX 50 indexes, with the low fees charged by each ETF ensuring that the returns went to where they belonged – the investors.
It’s no wonder then that more and more investors are seeing the value of making ETFs a core component of their portfolios.
A Core Component of an Investment Portfolio
Beyond low fees and capturing the returns of the broader market, ETFs also give investors other benefits that make them a suitable candidate for becoming a core portfolio component. Their listed structure provides them with higher liquidity and transparency – in contrast to other types of managed funds. Further, their “buy-and-hold” nature combined with market maker redemptions and franking credits also provide them with tax advantages.
For the savvy investor, investing in ETFs is a no-brainer.
1 ASX Investment Products Report, June 2021.