ETF/S&P500 Questions

[wmreschke]

Good afternoon everyone. I'm still very new to investing and was hoping that someone could assist me with the following questions:

1. Why would someone invest dollars into an ETF (e.g. Vanguard S&P500) if there are South African/ZAR equivalents that tracks the same index, thus yielding more or less the same returns?
2. Why does the price of the US and SA S&P 500 ETF's differ (maybe answering the previous question?). E.g. Satrix S&P500= R6668 and Vanguard S&P 500=$407/R6001 (407x14.75)
3. Why does the above price differ from the S&P 500 index price, 4432 (Dollars?)
4. Can the S&P 500 ETF's be made up of different companies? What is the difference between Vanguard S&P 500 (VOO) and Vanguard S&P500 Value (VOOV). Why does the price differ?

 

[faith4l]

@wmreschke 1) Tax...
If you invest in dollars instead of zar and lets say 10 years from now you sell out, you don't pay CGT on the currency fluctuations (assuming the dollar value increased over rand). If you invest via local (Zar) offshore funds, currency fluctuations are added to to the fund performance itself.

So lets say Zar depreciated 3% and the fund grew by 9%. In dollar terms the fund only grew by 6% - but you'll pay tax in the full growth including currency fluctuations.

Have a look at local offshore based fund like MSCI World fact sheet. You'll see performance is quoted as TR (Total return in currency), in Zar and then USD. Can Use Sygnia MSCI World as example.

2 - 4) This is a bit deep to explain. It depends on the manager and how the accumulated and when as well as where. Funds for example S&P1200 ESG doesn't mean it contains 1200 companies. ESG as an example means the companies in 1200 index that satisfy ESG requirements. They potential can only hold 700-800 constitutes instead of the normal 1200 index. Same with Value/Growth/Tech etc. Its all just keywords to try and explain the goal if the fund. So 500 Value for example will focus on the companies in the 500 index that satisfy value investing.

Read the factsheets of the fund and holdings/portfolio. Will explain the goal, fees, etc etc. Factsheet is where the info of the fund is and how it differs and its benchmark!

 

[labradoriansavedbygrace]

@faith4l So you'd advocate for investing in a USD fund over that of a ZAR one?

 

[faith4l]

@labradoriansavedbygrace It depends.

If you max your TFSA locally and have more money to invest offshore, and its for the a good stretch (say 15-20 years) - then yes. This is also with the assumption that the dollar will continue to beat the rand over the long stretch, which I believe it will (personal opinion based on my experience and years in investments, not financial advice).

The more money you take out at once, the less the overall % fee is. Shyft for example charges (last time I checked) 0.57% on the price of the USD and then a fixed fee on top of that. So if you send for example 500 then that fee can make up to lets say 10% of your investment. Where as if you transfer 5000 at once or even 50000, then the overall fee becomes allot less.

With any investment, calculate the transaction costs and fees associated as well as this makes a difference long term.

I have investments locally but lots of my offshore investments (Non TFSA) have been shifted towards using Interactive Brokers.

 

[labradoriansavedbygrace]

@faith4l Thanks for the advice. I tried IB at one stage but found the service unpleasant when compared it to what I've been using, which is EE. However I know that a lot of people advocate for IB, perhaps I need to try it again. Although I do prefer local support.

I still have quite a way to go with maxxing my TFSA, I'd like to invest for the next 15-20 years. Just not sure if I should be prioritising USD ETF's or TFSA...

 

[maxpow99]

@wmreschke 1: Same reason anyone has dollars instead of rands, or chooses to keep their funds in one country instead of another.

2:ETF units are just 'units' of a huge fund that tracks and has holdings in many companies. These 'units' are sold on the market and have different value. If today I created my own ETF that tracked the S&P500, the unit wouldnt be worth the same as established ones tracking the exact same thing because the value of my 'unit' is determined by the market which can vary. In your example you can see that variation isnt even that large, a few hundred rands, this is just the market deciding prices.

3:See 1&2

4: Sort of, they are meant to track the index exactly unless they specify otherwise. When they say "Vanguard S&P500 Value (VOOV)" what this means is that they are using a modified index, mostly similar to S&P500 but they correct or adjust the percentage holdings or change out some holdings for what they think is a better investment see this link https://fourpillarfreedom.com/voo-vs-voog-vs-voov-whats-the-difference/.