Should I Buy A200 ETF, A200 ETF, A200 ASX

BetaShares Australian Index Fund A200 is the world’s lowest ASX tracking ETF, which has undercut Vanguard and is gaining popularity. But with so many options what are the differences and Should I Buy A200 ETF?

Should I Buy A200 ETF: Pros and Cons

The Good

  • Lowest cost ASX index fund available
  • Diversification across 200 largest ASX companies
  • Full use of highly franked distributions
  • No currency risks
  • Australian Domiciled
  • DRIP opportunities

The Bad

  • Newly Established Fund
  • Home Bias
  • US markets have historically greater returns
  • Equities Only* (Can be seen as a positive)
  • Massive allocation to Banks and Materials

Who Should Buy A200 ETF?

A200 is used by many investors to gain exposure to a broad basket of Australia’s biggest public companies in an efficient manner.

It is becoming increasingly popular as the lowest-cost ASX index fund, undercutting Vanguard’s popular VAS ETF. The fund may be used by itself or in conjunction with other funds depending on your portfolio goals to gain Australian diversification. Here are some popular ideas of how it can be used in a portfolio: Creating The Ultimate ETF Portfolio

Should I Buy A200 ETF: Facts

Should I Buy A200 ETF, A200 ETF, A200 ASX
Ticker CodeA200
Fund NameBetaShares Australia 200 ETF
BenchmarkSolactive Australia 200 Index
Number of Holdings200
Assets Under Management$1.8 billion
Management Fee0.07%
Portfolio Turnover4.71%
Inception Date7 May 2018
Income DistributionsQuarterly
Distribution Reinvestment PlanYes
Annualized 3-Year Returns12%

Should I Buy A200 ETF: Price

About A200 ETF

A200 has become a very popular Australian ETF option as the product launched in 2018 and undercut all ASX ETFs to become the cheapest ASX Index fund with a management cost of only 0.07%. A200 provides low-cost, broadly diversified exposure to Australian companies and property trusts listed on the Australian Securities Exchange. It also offers potential long-term capital growth along with dividend income and franking credits.

The ETF is a passive index fund tracking the Solactive Australia 200 index. The Fund invests in a diversified portfolio of securities, which means the Fund is less exposed to the performance fluctuations of individual securities. The fund takes a passive investing approach, which has been shown to outperform Active investing. S&P concludes that 81.70% of active funds will underperform the index over a five-year period.

A200 is used by many Australian investors to gain exposure to a broad basket of Australia’s biggest public companies in an efficient manner. It can act as an excellent alternative to Vanguard’s VAS ETF.

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Should I Buy A200 ETF, A200 ETF, A200 ASX

A200 ETF Share Registry: Link Market Services. Through Link Market Services, you can manage your holdings and communications, and also select whether or not to reinvest distributions.

A200 is domiciled in Australia meaning it is a registered fund in Australia for tax purposes. Investors who buy into this ETF, and are Australian residents for tax purposes, will be subject to Australian taxes and regulation.

A200 ETF Portfolio Goal

“A200 aims to track the performance of an index (before fees and expenses) comprising 200 of the largest companies by market capitalization listed on the ASX”

BetaShares

The A200 ASX Benchmark Index

A200 has taken a different approach to the other popular ASX index funds by bidding away from the Standards and Poors index (S&P/ASX) and going with Solactive’s Australia 200 Index.

Indexing licensing and servicing charged by the index providers accounts for a large proportion of ETF fees. By taking a different route and avoiding the ‘brand-name’ S&P index, A200 is able to reduce costs and provide the lowest-cost ASX index fund to investors, all while maintaining similar results.

The Solactive Australia 200 index was published on the 30th of April 2018.

The Solactive Australia 200 Index (GTR) tracks the price movements of the 200 largest companies from the Australian Securities Exchange. Constituents are selected and weighted based on free-float market capitalization. The index is calculated as a total return index in AUD and reconstituted quarterly.

Soleactive

Solactive Australia 200 Index VS The S&P/ASX 200

The Solactive Australia 200 index and S&P/ASX 200 index both provide a very similar investment experience for investors.

Both indices are weighted based on free-float market capitalization and only include ASX-listed companies. The main difference arises in the inclusion criteria based on stock liquidity.

Solactive uses an absolute liquidity inclusion based on:

  • Average Daily Value Traded (ADV) of 100,000 AUD over the past month and the past 6 months
  • Median Daily Value Traded (MDV) of 100,000 AUD over the past month and the past 6 months

Whilst the S&P/ASX 200 uses a relative measure of liquidity compared to the overall stock market.

In reality, there is little difference in the index constituents. Both benchmarks are driven by a market-cap methodology that offers exposure to 200 of Australia’s largest companies

Should I Buy A200 ETF, A200 ETF, A200 ASX
Should I Buy A200 ETF: Historically the returns delivered by both indices have been near identical

Should I Buy A200 ETF: Holdings

Due to the nature of the Australian economy, A200 is heavily weighted towards Banks and materials. We can see in the graph below that Financial Services account for 31.7% of holdings and Materials a further 17.2%. That’s 48.9% combined. In our top 10 holdings, all of the big four banks are listed, these four companies account for 20.3% of all holdings.

The ASX 200 is slightly more concentrated on banking and financials than the ASX 300. Both indices have very low technology exposure. For this reason, many Australian investors often opt to hold an Australian index fund like A200 or VAS, alongside a US index fund such as IVV, which by nature are much more tech-heavy.

Should I Buy A200 ETF, A200 ETF, A200 ASX
Should I Buy A200 ETF: Sector Weightings

A200 Holdings Breakdown

A200 ASX Characteristics and Historical Data

Should I Buy A200 ETF, A200 ETF, A200 ASX

Based on A200 late 2021 allocation the fund's current PE ratio is 27.27x, and the price to book is 2.12x. The funds trailing twelve-month distribution yield has been 3.22% net.

We can see from the All Ordinaries index data the PE spike corresponds with the COVID crash, whereas share prices quickly recovered whilst earnings were still yet to return.

  • PE (Trailing): 27.27
  • PE (Projected): 17.12
  • P/B: 2.12
  • Indicated Dividend Yield: 3.32%
  • P/Sales: 2.51
  • P/Cash Flow: 12.72
  • Mean Total Market Cap: $11.445 Billion
  • Largest Constituent Weight: 8.4%

Historical ASX Investing Returns

Over the 40-year timeframe from 1980-2019 we can see the historic annual return for ASX stocks (Accounting for dividends). Over this time frame, a total of 10 years have had negative returns.

Should I Buy A200 ETF, A200 ETF, A200 ASX

The Average Annual ASX Return has been 13.27%

Should I Buy A200 ETF: Fees

  • Management Fee: 0.07% p.a
  • Indirect Costs: 0%
  • Estimated Transaction Costs: 0%
  • Bid/Ask Spread: 0.04%

Estimated Total MER: 0.11%

See Complete ETF Guide for More Fee Information

How Are A200 ETF Management Fees Paid?

Management fees are automatically deducted from the fund’s Net Asset Value on a daily basis. This means is you as an investor never have to directly send money to BetaShares. It is all processed by the fund as they deduct the fees from the underlying earnings/capital of the fund.

Because of this you never really notice the fees, instead, it just reduces the fund’s performance over time. When the fund sends out its annual statement at tax time you can see the full details of this.

Should I Buy A200 ETF, A200 ETF, A200 ASX
A200 ETF: Example Annual Statement showing annual fees

A200 ETF Bid-Ask Spread

The bid-ask spread is the difference in price between the highest price that a buyer is willing to pay for a security and the lowest price for which a seller is willing to sell it.

  • The narrower the spread the better, as this reduces the trading costs associated with buying and selling ETFs
  • Exchange-based spreads, as on the ASX, are set by the competitive tensions between market markers
  • Larger Funds will tend to have lower bid-ask spreads.
  • Bid-Ask spreads are not set but constantly change throughout the day, depending on supply and demand.

In October the average spread was 0.04%. However, there is no information regarding the long-term average of the fund. Since A200 is a relatively new fund, the average bid-ask spread of the fund is unclear. When purchasing units in the fund you can refer to the live iNAV of the fund to ensure spreads are reasonable.

Investors can assess the fair value of an ETF by comparing the ETF’s market price with the ETF’s net asset value (NAV) per unit. The iNAV provides an indication of the fair value of the ETF in real-time. This can be found on the fund's website during trading hours.

A200 ETF Fee Comparison

Ticker CodeA200VASIOZSTW
AUM$1.8B$8.5B$3.8B$4.7B
Mgmt Fees0.07%0.10%0.09%0.12%
Indirect Fees0000
Transactional Costs0%0%0%0%
Average Bid/Ask Spread0.04%0.03%0.05%0.04%
Total Fees0.11%0.13%0.14%0.16%

As we can see A200 not only has the lowest management fees of all ASX-Index ETFs at 0.07%, the fund also provides no indirect fees and has managed to maintain a very competitive bid/ask spread of 0.04%.

When accounting for all fees associated with holding A200 this represents a Management Expense Ratio of 0.11%. Or $11 per annum for every $10,000 invested.

In comparison, VAS has a slightly higher management fee of 0.10% and a total MER of 0.13% or $13 per $10,000 invested.

How To Buy A200 ASX

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Should I Buy A200 ETF: Performance

In the below graph we set out the returns of A200 compared to other popular funds. From this data, although there is limited historical data the fund would theoretically perform in a similar way to IOZ which tracks the S&P/ASX 200.

Results are expressed as average returns per annum.

We can see over the last ten years IOZ has averaged around 10% per year, theoretically similar results would have been expected by A200. We can see that US and global funds such as IVV and VGS have outperformed the returns of ASX index funds.

Should I Buy A200 ETF: Competitors

We can see there are a number of key players in the ASX index fund space. A200 is the newest and lowest cost index fund which has allowed the ETF to obtain a 'cult-like' following and amassed a massive $1.8 Billion AUM in just over two years.

Although A200 tracks a different index to the other funds, the differences between Solactives and S&Ps ASX index are very minor and will show negligible differences between funds.

A200 VS VAS

The main competition for A200 in the Australian index space is Vanguard's Low-cost VAS ETF which was established in 2009. Being a Vanguard fund this ETF quickly became the largest ASX-listed ETF in terms of AUM.

Prophets Trusted Affiliate Partner

A200 can be a great alternative to VAS for many investors looking for ASX exposure

It’s important to note A200 tracks the top 200, rather than VAS which is indexed to the ASX 300.

The differences in weightings between the indices is minor, and performance is similar. We personally don’t see this factor alone as a reason to pick one fund over another.

Should I Buy A200 ETF, A200 ETF, A200 ASX
Should I Buy A200: ASX 300 VS ASX 200

Similar ETFs are largely interchangeable, meaning there is little theoretical difference in choosing VAS over A200. When we dive in there are three small differences between funds which are: Fees, Portfolio Turover, and Small Cap Holdings.

VAS VS A200: Fees

Both VAS and A200 are low-cost index funds. As discussed earlier A200 has a lower management fee of 0.07% compared to VAS's 0.10% fee. A200 does have a slightly higher bid-ask spread, but the overall estimated MER is still lower at 0.11% compared to 0.13%

These differences are still minor and would represent a $2 difference per $10,000 Invested over the course of a year.

A200 estimated MER: 0.11% VAS estimated MER: 0.13%

See Complete ETF Guide for MER Definitions

VAS VS A200: Portfolio Turover

From our comparison, we can see that VAS historically has a very low portfolio turnover, which can help minimize tax implications. Although in saying this all funds have a very low turnover.

The turnover rate refers to how different the funds underlying funds are over the course of twelve months. This is caused by rebalancing within the fund and will incur some tax obligations. Again the difference between funds is very negligible, and both will perform similarly over time.

VAS VS A200 Small Cap Holdings

The largest difference for investors between choosing between VAS and A200 is the allocation to smaller cap companies achieved through VAS.

Companies outside of the ASX 200, have a smaller allocation to financials and are instead largely weighted towards materials and consumer discretionary. These shares tend to have higher PEs due to lower earnings and have historically slightly underperformed the ASX 200.

In saying this, since VAS is market-cap weighted the bottom 100 shares of the ASX 300 have very little weighting within the fund as we see below.

With stocks within the ASX rank 201-300 only accounting for 3.5% of VAS, any fluctuations within this group would have a very minor impact on returns.

A200 ETF Distributions

At the current rates, A200 pays a distribution of $3.7804 averaged over the last twelve months or a grossed-up $5.0697, after accounting for franking credits. This represents a yield of 3.06% (4.10% gross). These have been around 80.5% franked over this period.

As an ETF is a trust structure the fund will payout all its earnings after expenses to investors. The last twelve months have been slightly below ASX market averages which we graph below.

12-Month Dividend Yield: 3.06%

A200 ETF Distribution History

Should I Buy A200 ETF: Prophet's Take

A200 provides efficient exposure to the largest 200 Australian shares in one simple easy product. Its low-cost, tax-efficient strategy is an excellent option for investors looking for exposure to the Australian markets. It can act as a great alternative to VAS for many investors.

Due to the nature of the Australian economy, there is a large reliance on the banking and material sector. As such the fund is often combined with US or global ETFs to gain exposure to underrepresented sectors such as technology.

In terms of competition, A200 is the lowest cost ASX-index fund. I believe in the Australian economy and for this reason, I am very Bullish on A200. The ability for it to outperform 81.70% of active strategies has seen excellent performance.

Check out these articles:

A200 ETF Factsheet

Should I Buy A200 ETF, A200 ETF, A200 ASX
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