An Index Fund is a investment fund which track the performance of an equity index without without discretion of including or excluding specific companies. Index funds that are listed on the Australian Stock Exchange are also commonly known as Exchange Traded Funds (ETF).
Index funds are popular because it is a cost effective way for investors to gain exposure to the market. It is essentially buying a proportional share of the market.
For pure stock pickers like us, we like shares to buy in specific parts of the market where we see value and catalysts that will eventually realise that value.
There are a number of ASX ETFs index funds investors can use as a core component of the investment portfolio.
- Market index like large cap focused ASX 200 or Broader market All Ordinary Index
- Sector specific funds that track the performance of a sector only like financials, resources or technology shares
- Index funds of other assets classes i.e bonds, direct real estate
- Exchange Traded Funds which tracks an international market like the US S&P 500 ETF
- Strategy focused funds such as dividend index funds
SPDR S&P/ASX 200 Fund (STW) is one of the largest index funds listed on the ASX. It tracks the ASX 200 Index which is one of the most popular measurement of market performance (albeit with a large cap focus).
It is important to note that large caps dominate STW with top 10 positions accounting for more than half of the ASX index fund.
From liquidity and cost perspective STW is attractive for investors as its size means that bid and offer spread which measure the cost of investment implementation is relatively low.
As an ASX index tracker holding over 200 largest listed shares on the Australian Stock Exchange. Annual expense ratio of the fund is only 0.29% of the next assets.
STW Sector Breakdown
Exhibit below breaks down the sector composition of the stocks in STW. Unsurprisingly since STW track the ASX 200, the sector composure exactly mirrors the underlying index with limited tracking error.
There is a degree of sector concentration risk in which financials and resource sector dominates the fund, The value of companies in these 2 sectors comprises more than half the fund.
On the surface this is seen overstated as the financial sector also includes the Insurance and Real Estate Investment Trust sub sectors. If those are excluded, the Australian Banking Sector account for around 30% of the fund value.
SPDR ASX 200 – STW Dividend
The dividend of STW represent the yield of the broader market. Overall makeup of the dividend profile is dominated by its largest holdings in the financial sector. Currently the yield of STW ETF is around 4% inline with its historical dividend level going back 5 years.
Investment yield will rise and fall overtime if market rises given payout ratio of the companies in the index being constant.
STW Dividend History
The fund pays half annual distributions in June and December.
Historically, going back 5 years, STW on average yielded 2% of the fund at each payment month with total 4% annual dividend yield.
1 Year Performance of STW
STW Distribution Dates 2017/2018
First Distribution Ex-Distribution Date: 29 Dec 2016
First Distribution Record Date: 30 Dec 2016
First Distribution Payment Date: 11 Apr 2017
Second Distribution Ex-Distribution Date: 30 Mar 2017
Second Distribution Record Date: 31 Mar 2017
Second Distribution Payment Date: 31 May 2017
Third Distribution Ex-Distribution Date: 29 Jun 2017
Third Distribution Record Date: 30 Jun 2017
Third Distribution Payment Date: 11 Jul 2017
Fourth Distribution Ex-Distribution Date: 28 Sep 2017
Fourth Distribution Record Date: 29 Sep 2017
Fourth Distribution Payment Date: 11 Oct 2017