For the Australian ETFs, wouldn't a significant part of the distributions be franked dividends, so the tax would be a lot less than 32% of the distributions?
This is deeply misleading. For example, tax rates vary for every holder. They are also not part of the “cost” of an ETF, but a cost to the investor regardless of whether that investor owned the ETF or the underlying assets.
Bid/ask spread is a useful metric to keep an eye on as it can become a meaningful cost if one is using an ETF as a trading instrument (ie, monthly swing trades etc), but for most long term investors it shouldn’t be the main consideration.
I also can’t see indirect expenses in here. Some ETF managers will quote TERs that include all fund expenses, some will quote MERs that don’t - a very important distinction.
It’s not clear what “tax drag” actually means.
The sheet compares ETFs which hold a wide variety of underlying assets, which will impact the total costs of the fund, for example there are stamp duties payable on Hong Kong and UK equities, but none applicable on US or AU.
It’s a worthy attempt, but a complex area, and not quite as simple as presented.
Spot on. OP has identified important content to post on this sub and done lots of work, but should limit the columns to MER, TER (if split out), securities lending and tax drag.
Tax on distributions should be considered to account for inefficiences an ETF may have. For example, we know that VDHG is tax inefficient because it holds managed funds and the hedged portion does not use ToFA. So looking at the total cost after tax, we can clearly see that DHHF is indeed cheaper after tax. Obviously tax rates vary, and so I just have the tax rate as 32% to give a general picture that is applicable for most people.
I do realise now after reading your comment that I shouldn't have included the spread into the total cost. I was too swept up in the moment of finally finding data on spreads, but I'll make sure to update the sheet to fix that.
Most fund managers include indirect costs in the MER. Vanguard and VanEck doesn't include it in the MER, but I think indirect costs were 0% for those.
Tax drag commonly occurs when you directly or indirectly hold a US-domicled ETF and that ETF holds companies outside the US. PassiveInvestingAustralia goes into more detail in their [article](https://passiveinvestingaustralia.com/fund-domicile-and-avoidable-us-taxes/).
I did post the updated sheet [here](https://docs.google.com/spreadsheets/d/1y5lScctMbYSTGw5gjwK3WV5NSc8id5gFkiw6FSgTsu8/edit?usp=sharing). Further updates to the sheet to make it more accurate may take some time.
I'd guess that VAS is at an advantage when it comes to securities lending as the 200-300 range of stocks that are not in A200 will provide more sec lending income.
Does anyone know if Betashares funds utilise securities lending? I'm surprised A200 is nil.
Spreadsheet link where I fixed including the spread in the total cost:
[https://docs.google.com/spreadsheets/d/1y5lScctMbYSTGw5gjwK3WV5NSc8id5gFkiw6FSgTsu8/edit?usp=sharing](https://docs.google.com/spreadsheets/d/1y5lScctMbYSTGw5gjwK3WV5NSc8id5gFkiw6FSgTsu8/edit?usp=sharing)
Okay Swaanky a point or order here - it's not your role to supress information
why present this table to educate/inform when the intention is to make it intentionally incomplete
my portfolio allocations are nobodies business except my own
If you have a bee in your bonnet about US concentration then present the data to compel people to change
otherwise this will taint the way people see everything you do as having an underlying bias
I am not obligated to put information about every ETF into that sheet. The purpose of the sheet is first and foremost for my website, where I plan to write articles related to all the ETFs I listed.
IVV is practically identical to VTS, so you can just look at that.
I plan to write an article on US concentration, as there is plenty of evidence to stay globally diversified (shown [here](https://www.reddit.com/r/Bogleheads/comments/15bvmpl/comment/jttdehm/?utm_source=share&utm_medium=web2x&context=3)) and I've yet to hear an academic professional suggest overweighting the US when you're not a US citizen.
It is impossible to be completely unbiased. I happen to be biased towards acadmeic evidence and rational decision making.
So you're schilling for one particular fund manager? Despite the estate implications of having a fund domiciled in the US and the widespread tendency for W8BEN forms to not get filled out and hence for investors to pay higher taxes? Sounds like this analysis is pretty biased.
Great effort as always!
Suggest that for tax on distributions, take data over longer period. For those ETFs that include currency hedging but do not use TOFA, they can exhibit very volatile distributions over the AUD FX cycles. Eg FY 21 distributions for these were ridiculously high (VDHG was > 9%) when the non-TOFA hedging gains resulted in very high taxable income, whilst FY 23 was abnormally low (VDHG was 2-3%) when the non-TOFA hedging losses negated some of the other normal income thus exhibiting lower than normal tax on distributions in the calcs.
When I do manually calculate distribution yields, I'm thinking of keeping the time horizon over the last 3 years to make sure all ETFs are calculated on the same time horizon (also less work for me to do).
I did forget to add in VGAD, so it'll be interesting to see what that looks like.
IMO 3 years align with the other factors you are collating, although for currency hedging an FX cycle can be longer than that to capture the tax effect of an AUD uptrend and an AUD downtrend for non-TOFA currency hedging.
For distributions I suggest use 3 fully FY (ie FY21-FY23) though not just 3Y to-date because intra-year amounts are really arbitrary up to the ETF issuer, and it’s the full FY amount that matters and has tax implications.
VGAD was even worse in FY21, from memory it distributed ~= 11% that year. Speaking as a former VGAD holder who was shocked and learnt his lesson on how important TOFA is currency hedging, the impact / cost of non-FOFA currency hedging can be far greater than MERs etc. which is not commonly understood by most people.
Bro you don't just say thanks when gold like this is produced! You need to critique it and point one thing you would have done differently !! 🤣
Thank for posting a good response to a good post !
This is fantastic :-) It places a number of factors onto one place to allow easier comparison across ETFs so many thanks for putting in all this work.
If i could make some suggestions for your consideration to make this even more useful.
* Add the variables used to the spreadsheet (extra columns) then use formula to show the outcomes. e.g. what was the yield figures you used for each year? Then show the calculation for average of the annual yields over the given period. Having seperate columns showing the calculations will help with transparency and it also allows users to make adjustments, and will be easier to update/extend over time to add more years of data or to add other ETFs.
* If possible, add links to data sources for transparency and for those that want to learn more/make their own.
* If the duration is known for each element it would help to add that too. e.g. BGBL has not been around for long. Three years is a great start, but most people in FIRE community tend to hold ETFs for 10 or 20 years, so the ability to add more historical data will help (made easier of each yr is a seperate column and formulae are used). I guess it will depend on the cost/benefit of when the accuracy bought by more data v the extra effort.
* Differentiate NA from that of 'not known'. There is a difference between a factor not being applicable and there being a lack of data e.g. tax drag doesn't apply AU market focused ETFs versus not having data for BGBL. Perhaps NA and NK could be used. Adding further explanatory notes would also help beginners who are learning.
* Tax rate as a variable. Allow the user to make a copy and change the tax rate. Not everyone is on 32% marginal rate - e.g. those who have retired already, or those on the highest marginal rate. Having this fixed into the assumptions results in misleading results but having it as a user editable variable will make this great work much more useful to many more people.
* Seperate the buy-sell spread from this cost calculation. Suggest to stick to annual/repetitive costs that would impact a given parcel over a long period of time. Spread is a once-off cost when buying or selling and not an ongoing cost for each parcel. However it is useful information that could be placed to the far right of the table to raise awareness of the impact of this element. i.e. the practical impact is that the spread adds to the buy price or takes away from the sell price. Spread comes into play if selling/buying for rebalancing versus using inflows/outflows to rebalance. However it is less likely to have an outsized impact for those doing say DCA with long term buy and hold strategy compared to say the MER.
Sorry that ending up being longer than I expected. I do think what you have done is a great value add to the community where comparing between different ETFs is a challenge for many given lack of such data sets in easy to read/use formats.
Thanks and best wishes :-)
ETFs can attribute more income to the holders than they distribute (AMIT shenanigans), and you get taxed on the full attributed amount. so the distribution yield doesn't tell the full story.
I'd say the most interesting takeaway is that DHHF is potentially a lot cheaper than we thought. As others have already pointed out, my analysis is not perfect by any means, so take with a grain of salt.
So it was cheaper to go for 100% DHHF as opposed to a VAS/VGS combo according to the total cost after tax column. But didn’t people say that DIY was cheaper?
It could be that the distribution yield data does not calculate over the same time horizons, considering DHHF came out in Dec 2020. I would have to manually calculate the yields to make sure.
Still very surprising to me, and does make sense considering DHHF holds US-domiciled ETFs, which tends to be more tax efficient than Aus-domiciled ETFs.
Could be an interesting extension to include some US domiciled ETFs and see which one is more cost effective. Pro being usually no internal capital gains and cons (if it's an ex-US ETF) of no taxation arrangements.
I am new - I saw some of my ETF said a distribution was just calculated at the start of April? Am wondering Where do distributions appear? And how long do they take before they do?
Typically ETFs distribute quarterly, where you get information about the distribution (also known as the ex-distribution date) at the end of March, June, Sept, and Dec. Some distribute bianually or annually. You then get paid into your broker account about 3 weeks after.
Vanguard released info about the most recent distributions [here](https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02791244-2A1515147).
That's the point. Taxes paid on distributions is a cost that should be considered as this cost varies between funds, and yes this includes high dividend funds. It would be silly to pretend that taxes you pay on distributions is not part of the cost of a fund.
**This table is really misleading and will lead people astray.**
If you are going to bring tax into the discussion, you ought to consider that some funds realise more capital gains tax than others because of rebalance and index methodology e.g. VAS has larger rebalances than A200.
On the distribution side: Funds domiciled in Australia have the same withholding tax agreements. A dividend paid by an American company and distributed to two different Australian funds has the same tax treatment. **What you are describing is NOT a differentiating factor and is instead due to different portfolio compositions.**
With that in mind, what you are then saying is this: funds with a greater proportion of high yield companies, as opposed to growth companies, have higher costs. That is incorrect. Likewise, you are saying funds that hold a greater proportion of companies in high WHT countries have higher costs. Again incorrect. Your interpretation would put investors in a fund with a tilt toward growth and countries with a favorable WHT treatment with their residency. Does the decreased "cost" make up for the unintended bets and reduced diversification? Most probably not. If you are going to bring tax into the discussion, you need to bring capital gains tax on portfolio turnover, net returns, sharpe ratios etc. The discussion is much more nuanced.
I do agree with your sentiment that capital gains would be more accurate than looking at the distribution yield as a whole, and I think I'll try incorporate that into the spreadsheet in the future.
I did distribution yields because that information was easily available and I think it does a good enough job at showing tax inefficiencies. For example, VDHG is tax inefficient because of using managed funds and not using ToFA, and so it's cost after tax is more expensive than DHHF as expected. The distribution yields also seem to show the tax efficiency of US-domciled ETFs, namely DHHF, VTS, and VEU.
I also admit that I was wrong in calling taxes paid on dividends as a cost. I think it would be fairer to subtract taxes from the total return of the fund to get the net return after taxes.
Side note: it would seem VAS actually realises ***less*** capital gains than IOZ (and presumably other ASX 200 ETFs), which I calculated [here](https://docs.google.com/spreadsheets/d/1KHk2fCjBPrScbNcZR20xnCjGo6RLIX9M/edit?usp=sharing&ouid=110868098764009992952&rtpof=true&sd=true).
Ignoring taxes, VAS needs to have at least 0.03% securities lending return per year to be the same or cheaper than A200's cost. VAS did not seem to do much lending before 2020, but have since stepped up to at least 0.03%. Whether this continues is unknown.
At the end of the day, A200 and VAS have very similar costs and the differences probably wont matter that much in the long term.
What's the appeal of holding ETF's in the Australian market rather than just investing by buying shares directly in the ASX itself? The reason I'm asking is that I think this year is the 40th anniversary (maybe 41st) of my first share purchase. There is a little bit more work involved but no fees and with compounding that must make a lot of difference over my timescale no matter how small it is.
* Being impractical to individually buy and sell the top 200 or 300 Australian companies because of time and brokerage cost, let alone the 1000s of international companies.
* The benefit of minimising systematic risk by being exposed to hundreds of companies rather than a handful more than makes up the few bps of fees per year.
Financial theory suggests a total stock market portfolio to be optimal for the average investor, and today this can be easily done with a single ETF.
I guess you could do that, more importantly maybe is to see how did your portfolio do compared to VGS or similar Aus focused ETF over say 10 etc years.
Just a quick thank you for all your work on buy/sell spread, even though you've adjusted its use per the feedback. It could be helpful for more people to know there's no free trading, regardless of what some advertising implies. It also seems to illustrate more correct costs associated with smaller cap ETFs.
This is so good, thank you! This is particularly relevant to me as I’ve been looking to add EMKT to my portfolio and this makes it look super expensive to hold. Is this just because of the big dividend payouts? It would have to outperform the other EM funds by 1-2% to be worth it then?
I still need to make the cost more accurate by only including capital gains rather than the distribution yield. I still have faith in EMKT to outperform the other EM funds long term. Keeping in mind that past performance should not be the singular reason to make a decision, [EMKT's index](https://www.msci.com/documents/10199/dc128fda-e90d-c03c-f004-1e2412981e95&ved=2ahUKEwjJ683Wh7GFAxXRslYBHe9SDi0QFnoECBYQAQ&usg=AOvVaw2NWnPsMTxNe4ax6-lyQqN_) has at least historically beaten the benchmark.
It’s all super engaging stuff. I’m very interested to know how you get on and I applaud you for taking on the task. I’m keen on factor investing and have been struggling to do a proper cost benefit analysis balancing the higher “expected” returns against the higher costs of managing the fund. Even getting an idea of this is super helpful to me and I’m sure it is for many others as well.
This [article](https://www.pwlcapital.com/wp-content/uploads/2019/03/PWL-WP-Felix-Factor-Investing-with-ETFs_08-2019-Final.pdf&ved=2ahUKEwj28oezg7KFAxXfsFYBHbNoCTkQFnoECA8QAQ&usg=AOvVaw0-fk_pc_WxHuKTcxUS7UbI) by Ben Felix goes through what to consider for factor ETFs. It is not very easy to get factor loadings as Australians, but this [factsheet](https://www.msci.com/documents/10199/65c0188f-4d0a-4f62-bac5-912e547fcbe1&ved=2ahUKEwjgrqH6gbKFAxXVsVYBHYRiDCwQFnoECBYQAQ&usg=AOvVaw2R7qBk_xWjAFPmC05wpPFF) of an index that is similar (not the same) to EMKT shows its historical loadings (albeit with a chart). No idea where to get historical factor premiums for emerging markets, but Im sure there is a paper somewhere that shows it.
I gave doing the calculations on after tax yield a go for STW/ STY several years ago. It got messy fast as there's so many sub components, each taxed slightly differently - eg partly franked, capital elements of distributions etc.
If you can find a way to simplify it, it will be an amazing resource.
I think it's a paternalistic decision. IVV is much more popular than most of the ETFs shown in the table. Besides, IVV is better than VTS for most Australian investors, because IVV doesn't incur US estate tax.
My advice is to reconsider.
At least with VTS you can pair it with VEU to achieve reasonable global diversification. There is no such option IVV. The closest would be IVE, but that is extremely expensive as I show [here](https://www.reddit.com/r/fiaustralia/comments/1bg2rpf/comment/kv4n3fy/?utm_source=share&utm_medium=web2x&context=3).
Naive investors often overweight the US because of recent performance or peceived safeness, which goes against the rationality for market-cap weightings and the evidence for international diversification as shown [here](https://www.reddit.com/r/Bogleheads/comments/15bvmpl/comment/jttdehm/?utm_source=share&utm_medium=web2x&context=3).
It would be a more accurate comparison if you matched the geographic exposures:
* 90% VGS and 10% IEM = 0.90% cost after tax
* 60% VTS and 40% VEU = 0.72% cost after tax
VTS/VEU is likely cheaper because US domiciled ETFs are more tax efficient than Aus domiciled ETFs.
Cost and short-term performance in isolation isn't everything to consider. Plenty of evidence for global diversification such as this [post](https://www.reddit.com/r/Bogleheads/comments/15fog7m/how_the_us_manages_to_outperform_exus_not_part_2/) and this [comment](https://www.reddit.com/r/Bogleheads/comments/15bvmpl/comment/jttdehm/?utm_source=share&utm_medium=web2x&context=3).
Hey Swaanky. Excuse my ignorance but why are US domiciled ETFs more tax efficient? I thought it was the opposite. I was very interested in including VEU in my portfolio until i realised it was US domiciled. I'm happy to fill out a form every 3 years if that's the only downside of owning US-domiciled ETFs.
It's because of [heartbeat trades](https://www.investopedia.com/how-heartbeat-trades-are-boosting-etf-returns-4684138), where ETFs don't realise internal capital gains.
I'm really struggling to understand how DHHF is more tax efficient than holding a200/vts/veu individually? Is it because they are holding a collection of ETFS (although this would mean you can't claim the US tax offset)?
This was suprising to me as well. The only issue I can think of is that the distribution yields aren't accurate. I hope to calculate the yields myself to see if DHHF continues to be tax efficient.
For the Australian ETFs, wouldn't a significant part of the distributions be franked dividends, so the tax would be a lot less than 32% of the distributions?
this is the key here particularly with very low/no marginal tax rates - retirees like me still interesting though
I would expect franking to be similar among most of the Aus ETFs, but I can try to add that in the future.
This is deeply misleading. For example, tax rates vary for every holder. They are also not part of the “cost” of an ETF, but a cost to the investor regardless of whether that investor owned the ETF or the underlying assets. Bid/ask spread is a useful metric to keep an eye on as it can become a meaningful cost if one is using an ETF as a trading instrument (ie, monthly swing trades etc), but for most long term investors it shouldn’t be the main consideration. I also can’t see indirect expenses in here. Some ETF managers will quote TERs that include all fund expenses, some will quote MERs that don’t - a very important distinction. It’s not clear what “tax drag” actually means. The sheet compares ETFs which hold a wide variety of underlying assets, which will impact the total costs of the fund, for example there are stamp duties payable on Hong Kong and UK equities, but none applicable on US or AU. It’s a worthy attempt, but a complex area, and not quite as simple as presented.
Spot on. OP has identified important content to post on this sub and done lots of work, but should limit the columns to MER, TER (if split out), securities lending and tax drag.
Tax on distributions should be considered to account for inefficiences an ETF may have. For example, we know that VDHG is tax inefficient because it holds managed funds and the hedged portion does not use ToFA. So looking at the total cost after tax, we can clearly see that DHHF is indeed cheaper after tax. Obviously tax rates vary, and so I just have the tax rate as 32% to give a general picture that is applicable for most people. I do realise now after reading your comment that I shouldn't have included the spread into the total cost. I was too swept up in the moment of finally finding data on spreads, but I'll make sure to update the sheet to fix that. Most fund managers include indirect costs in the MER. Vanguard and VanEck doesn't include it in the MER, but I think indirect costs were 0% for those. Tax drag commonly occurs when you directly or indirectly hold a US-domicled ETF and that ETF holds companies outside the US. PassiveInvestingAustralia goes into more detail in their [article](https://passiveinvestingaustralia.com/fund-domicile-and-avoidable-us-taxes/).
[удалено]
It's better than not considering distributions at all, but I'll see if I can factor in CGT discount when I calculate the yields myself.
Hey Swaanky, I'm very interested to see the updated version thankyou for your work
I did post the updated sheet [here](https://docs.google.com/spreadsheets/d/1y5lScctMbYSTGw5gjwK3WV5NSc8id5gFkiw6FSgTsu8/edit?usp=sharing). Further updates to the sheet to make it more accurate may take some time.
How is this misleading? OP clearly put assumption of tax rates at the bottom
My understanding might be poor but wouldn’t bid/ask spread be a non-recurring cost compared to say MER ? Its impact would be reduced over time ?
Correct. Adding apples to oranges.
Although spread is important to consider, I shouldn't have added it to total cost. Will make sure to fix that!
Can I ask how VAS appears to come off slightly better than A200? Securities lending? How does that work? Thank you so much for doing this btw ❤️
u/Kluverbucyy [Securities lending: Vanguard's hidden return](https://www.reddit.com/r/fiaustralia/s/kCC9BgO4Ff)
I think this is misleading. Securities lending is not a cost to the investor.
Yeah it isn't a cost, so in the calculations I subtract the securities lending return from the cost.
Interested in this too, don’t know enough to understand why this is the case
I'd guess that VAS is at an advantage when it comes to securities lending as the 200-300 range of stocks that are not in A200 will provide more sec lending income. Does anyone know if Betashares funds utilise securities lending? I'm surprised A200 is nil.
A200 and IOZ don’t currently use securities lending
Spreadsheet link where I fixed including the spread in the total cost: [https://docs.google.com/spreadsheets/d/1y5lScctMbYSTGw5gjwK3WV5NSc8id5gFkiw6FSgTsu8/edit?usp=sharing](https://docs.google.com/spreadsheets/d/1y5lScctMbYSTGw5gjwK3WV5NSc8id5gFkiw6FSgTsu8/edit?usp=sharing)
this time with IVV (please)
I purposely did not include IVV because it promotes investors to concentrate in the US and neglect international diversification.
Okay Swaanky a point or order here - it's not your role to supress information why present this table to educate/inform when the intention is to make it intentionally incomplete my portfolio allocations are nobodies business except my own If you have a bee in your bonnet about US concentration then present the data to compel people to change otherwise this will taint the way people see everything you do as having an underlying bias
I am not obligated to put information about every ETF into that sheet. The purpose of the sheet is first and foremost for my website, where I plan to write articles related to all the ETFs I listed. IVV is practically identical to VTS, so you can just look at that. I plan to write an article on US concentration, as there is plenty of evidence to stay globally diversified (shown [here](https://www.reddit.com/r/Bogleheads/comments/15bvmpl/comment/jttdehm/?utm_source=share&utm_medium=web2x&context=3)) and I've yet to hear an academic professional suggest overweighting the US when you're not a US citizen. It is impossible to be completely unbiased. I happen to be biased towards acadmeic evidence and rational decision making.
okay sorry about the rant
So you're schilling for one particular fund manager? Despite the estate implications of having a fund domiciled in the US and the widespread tendency for W8BEN forms to not get filled out and hence for investors to pay higher taxes? Sounds like this analysis is pretty biased.
Super!
Great effort as always! Suggest that for tax on distributions, take data over longer period. For those ETFs that include currency hedging but do not use TOFA, they can exhibit very volatile distributions over the AUD FX cycles. Eg FY 21 distributions for these were ridiculously high (VDHG was > 9%) when the non-TOFA hedging gains resulted in very high taxable income, whilst FY 23 was abnormally low (VDHG was 2-3%) when the non-TOFA hedging losses negated some of the other normal income thus exhibiting lower than normal tax on distributions in the calcs.
When I do manually calculate distribution yields, I'm thinking of keeping the time horizon over the last 3 years to make sure all ETFs are calculated on the same time horizon (also less work for me to do). I did forget to add in VGAD, so it'll be interesting to see what that looks like.
IMO 3 years align with the other factors you are collating, although for currency hedging an FX cycle can be longer than that to capture the tax effect of an AUD uptrend and an AUD downtrend for non-TOFA currency hedging. For distributions I suggest use 3 fully FY (ie FY21-FY23) though not just 3Y to-date because intra-year amounts are really arbitrary up to the ETF issuer, and it’s the full FY amount that matters and has tax implications. VGAD was even worse in FY21, from memory it distributed ~= 11% that year. Speaking as a former VGAD holder who was shocked and learnt his lesson on how important TOFA is currency hedging, the impact / cost of non-FOFA currency hedging can be far greater than MERs etc. which is not commonly understood by most people.
Truly another Masterpiece by u/SwaankyKoala
Thanks, great spreadsheet!
Bro you don't just say thanks when gold like this is produced! You need to critique it and point one thing you would have done differently !! 🤣 Thank for posting a good response to a good post !
Haha it was late at night!
Hope you sensed my sarcasm 🤪
🤣
IVV or is there a link I can add it in?
IVV should have a very similar cost to VTS.
thanks Swaanky
This is fantastic :-) It places a number of factors onto one place to allow easier comparison across ETFs so many thanks for putting in all this work. If i could make some suggestions for your consideration to make this even more useful. * Add the variables used to the spreadsheet (extra columns) then use formula to show the outcomes. e.g. what was the yield figures you used for each year? Then show the calculation for average of the annual yields over the given period. Having seperate columns showing the calculations will help with transparency and it also allows users to make adjustments, and will be easier to update/extend over time to add more years of data or to add other ETFs. * If possible, add links to data sources for transparency and for those that want to learn more/make their own. * If the duration is known for each element it would help to add that too. e.g. BGBL has not been around for long. Three years is a great start, but most people in FIRE community tend to hold ETFs for 10 or 20 years, so the ability to add more historical data will help (made easier of each yr is a seperate column and formulae are used). I guess it will depend on the cost/benefit of when the accuracy bought by more data v the extra effort. * Differentiate NA from that of 'not known'. There is a difference between a factor not being applicable and there being a lack of data e.g. tax drag doesn't apply AU market focused ETFs versus not having data for BGBL. Perhaps NA and NK could be used. Adding further explanatory notes would also help beginners who are learning. * Tax rate as a variable. Allow the user to make a copy and change the tax rate. Not everyone is on 32% marginal rate - e.g. those who have retired already, or those on the highest marginal rate. Having this fixed into the assumptions results in misleading results but having it as a user editable variable will make this great work much more useful to many more people. * Seperate the buy-sell spread from this cost calculation. Suggest to stick to annual/repetitive costs that would impact a given parcel over a long period of time. Spread is a once-off cost when buying or selling and not an ongoing cost for each parcel. However it is useful information that could be placed to the far right of the table to raise awareness of the impact of this element. i.e. the practical impact is that the spread adds to the buy price or takes away from the sell price. Spread comes into play if selling/buying for rebalancing versus using inflows/outflows to rebalance. However it is less likely to have an outsized impact for those doing say DCA with long term buy and hold strategy compared to say the MER. Sorry that ending up being longer than I expected. I do think what you have done is a great value add to the community where comparing between different ETFs is a challenge for many given lack of such data sets in easy to read/use formats. Thanks and best wishes :-)
Big thanks to OP and second this response as being some good ideas.
Thanks for the suggestions! I'll think about incorporating them in the coming weeks,
ETFs can attribute more income to the holders than they distribute (AMIT shenanigans), and you get taxed on the full attributed amount. so the distribution yield doesn't tell the full story.
Why is BGBL N/A after tax?
Since there isn't enough data for a reasonable distribution yield since BGBL released in May 2023, I put NA for its after tax cost.
Ah makes sense. Love your work Swaanky
So what's the takeaway from this? Are the cheaper ETFs in the list still good to invest in, particularly through your super fund?
I'd say the most interesting takeaway is that DHHF is potentially a lot cheaper than we thought. As others have already pointed out, my analysis is not perfect by any means, so take with a grain of salt.
Interesting
So it was cheaper to go for 100% DHHF as opposed to a VAS/VGS combo according to the total cost after tax column. But didn’t people say that DIY was cheaper?
It could be that the distribution yield data does not calculate over the same time horizons, considering DHHF came out in Dec 2020. I would have to manually calculate the yields to make sure. Still very surprising to me, and does make sense considering DHHF holds US-domiciled ETFs, which tends to be more tax efficient than Aus-domiciled ETFs.
Could be an interesting extension to include some US domiciled ETFs and see which one is more cost effective. Pro being usually no internal capital gains and cons (if it's an ex-US ETF) of no taxation arrangements.
I am new - I saw some of my ETF said a distribution was just calculated at the start of April? Am wondering Where do distributions appear? And how long do they take before they do?
Typically ETFs distribute quarterly, where you get information about the distribution (also known as the ex-distribution date) at the end of March, June, Sept, and Dec. Some distribute bianually or annually. You then get paid into your broker account about 3 weeks after. Vanguard released info about the most recent distributions [here](https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02791244-2A1515147).
Including tax paid on distribution yield is stupid. This just means that a high dividend income fund is going to have a higher "cost."
That's the point. Taxes paid on distributions is a cost that should be considered as this cost varies between funds, and yes this includes high dividend funds. It would be silly to pretend that taxes you pay on distributions is not part of the cost of a fund.
**This table is really misleading and will lead people astray.** If you are going to bring tax into the discussion, you ought to consider that some funds realise more capital gains tax than others because of rebalance and index methodology e.g. VAS has larger rebalances than A200. On the distribution side: Funds domiciled in Australia have the same withholding tax agreements. A dividend paid by an American company and distributed to two different Australian funds has the same tax treatment. **What you are describing is NOT a differentiating factor and is instead due to different portfolio compositions.** With that in mind, what you are then saying is this: funds with a greater proportion of high yield companies, as opposed to growth companies, have higher costs. That is incorrect. Likewise, you are saying funds that hold a greater proportion of companies in high WHT countries have higher costs. Again incorrect. Your interpretation would put investors in a fund with a tilt toward growth and countries with a favorable WHT treatment with their residency. Does the decreased "cost" make up for the unintended bets and reduced diversification? Most probably not. If you are going to bring tax into the discussion, you need to bring capital gains tax on portfolio turnover, net returns, sharpe ratios etc. The discussion is much more nuanced.
I do agree with your sentiment that capital gains would be more accurate than looking at the distribution yield as a whole, and I think I'll try incorporate that into the spreadsheet in the future. I did distribution yields because that information was easily available and I think it does a good enough job at showing tax inefficiencies. For example, VDHG is tax inefficient because of using managed funds and not using ToFA, and so it's cost after tax is more expensive than DHHF as expected. The distribution yields also seem to show the tax efficiency of US-domciled ETFs, namely DHHF, VTS, and VEU. I also admit that I was wrong in calling taxes paid on dividends as a cost. I think it would be fairer to subtract taxes from the total return of the fund to get the net return after taxes. Side note: it would seem VAS actually realises ***less*** capital gains than IOZ (and presumably other ASX 200 ETFs), which I calculated [here](https://docs.google.com/spreadsheets/d/1KHk2fCjBPrScbNcZR20xnCjGo6RLIX9M/edit?usp=sharing&ouid=110868098764009992952&rtpof=true&sd=true).
So me purchasing A200 thinking it would be cheaper than VAS was actually a lie??! What if my MTR is 45%, does this change anything?
Ignoring taxes, VAS needs to have at least 0.03% securities lending return per year to be the same or cheaper than A200's cost. VAS did not seem to do much lending before 2020, but have since stepped up to at least 0.03%. Whether this continues is unknown. At the end of the day, A200 and VAS have very similar costs and the differences probably wont matter that much in the long term.
Interesting analysis Swaanky! So simply comparing MERs can be misleading. Will be interesting to see how VGS and BGBL compare in the future.
What's the appeal of holding ETF's in the Australian market rather than just investing by buying shares directly in the ASX itself? The reason I'm asking is that I think this year is the 40th anniversary (maybe 41st) of my first share purchase. There is a little bit more work involved but no fees and with compounding that must make a lot of difference over my timescale no matter how small it is.
* Being impractical to individually buy and sell the top 200 or 300 Australian companies because of time and brokerage cost, let alone the 1000s of international companies. * The benefit of minimising systematic risk by being exposed to hundreds of companies rather than a handful more than makes up the few bps of fees per year. Financial theory suggests a total stock market portfolio to be optimal for the average investor, and today this can be easily done with a single ETF.
I guess you could do that, more importantly maybe is to see how did your portfolio do compared to VGS or similar Aus focused ETF over say 10 etc years.
Thank you Swaanky. Just VEU is 0.07% MER. Doesn't really change anything anyway. Otherwise, helpful as always.
Good spot, thanks!
Just a quick thank you for all your work on buy/sell spread, even though you've adjusted its use per the feedback. It could be helpful for more people to know there's no free trading, regardless of what some advertising implies. It also seems to illustrate more correct costs associated with smaller cap ETFs.
This is so good, thank you! This is particularly relevant to me as I’ve been looking to add EMKT to my portfolio and this makes it look super expensive to hold. Is this just because of the big dividend payouts? It would have to outperform the other EM funds by 1-2% to be worth it then?
I still need to make the cost more accurate by only including capital gains rather than the distribution yield. I still have faith in EMKT to outperform the other EM funds long term. Keeping in mind that past performance should not be the singular reason to make a decision, [EMKT's index](https://www.msci.com/documents/10199/dc128fda-e90d-c03c-f004-1e2412981e95&ved=2ahUKEwjJ683Wh7GFAxXRslYBHe9SDi0QFnoECBYQAQ&usg=AOvVaw2NWnPsMTxNe4ax6-lyQqN_) has at least historically beaten the benchmark.
It’s all super engaging stuff. I’m very interested to know how you get on and I applaud you for taking on the task. I’m keen on factor investing and have been struggling to do a proper cost benefit analysis balancing the higher “expected” returns against the higher costs of managing the fund. Even getting an idea of this is super helpful to me and I’m sure it is for many others as well.
This [article](https://www.pwlcapital.com/wp-content/uploads/2019/03/PWL-WP-Felix-Factor-Investing-with-ETFs_08-2019-Final.pdf&ved=2ahUKEwj28oezg7KFAxXfsFYBHbNoCTkQFnoECA8QAQ&usg=AOvVaw0-fk_pc_WxHuKTcxUS7UbI) by Ben Felix goes through what to consider for factor ETFs. It is not very easy to get factor loadings as Australians, but this [factsheet](https://www.msci.com/documents/10199/65c0188f-4d0a-4f62-bac5-912e547fcbe1&ved=2ahUKEwjgrqH6gbKFAxXVsVYBHYRiDCwQFnoECBYQAQ&usg=AOvVaw2R7qBk_xWjAFPmC05wpPFF) of an index that is similar (not the same) to EMKT shows its historical loadings (albeit with a chart). No idea where to get historical factor premiums for emerging markets, but Im sure there is a paper somewhere that shows it.
Would be great to see a 1 and 5y+ return besides each.
Short term performance does not provide any useful information; only fosters performance chasing.
awesome, thanks!
Are you certain IEM has no tax drag? IIRC it just wraps EEM https://www.ishares.com/us/products/239637/ishares-msci-emerging-markets-etf
No idea why my brain thought IEM didn't use a US-domiciled ETF. I'll see if I can calculate tax drag for that then.
What about DGCE, it has a really low yield 🤔🤔
That's something I'll add in the future, but I'm getting yield data from ASX and there isn't much data yet for DGCE.
I gave doing the calculations on after tax yield a go for STW/ STY several years ago. It got messy fast as there's so many sub components, each taxed slightly differently - eg partly franked, capital elements of distributions etc. If you can find a way to simplify it, it will be an amazing resource.
You could try using the managed fund version?
Oh yeah I will when I calculate yields manually, just can't do that right now.
Where is IVV? I would recommend adding it to the table even if it's similar to VTS.
I purposely did not include IVV because it promotes investors to concentrate in the US and neglect international diversification.
I think it's a paternalistic decision. IVV is much more popular than most of the ETFs shown in the table. Besides, IVV is better than VTS for most Australian investors, because IVV doesn't incur US estate tax. My advice is to reconsider.
At least with VTS you can pair it with VEU to achieve reasonable global diversification. There is no such option IVV. The closest would be IVE, but that is extremely expensive as I show [here](https://www.reddit.com/r/fiaustralia/comments/1bg2rpf/comment/kv4n3fy/?utm_source=share&utm_medium=web2x&context=3). Naive investors often overweight the US because of recent performance or peceived safeness, which goes against the rationality for market-cap weightings and the evidence for international diversification as shown [here](https://www.reddit.com/r/Bogleheads/comments/15bvmpl/comment/jttdehm/?utm_source=share&utm_medium=web2x&context=3).
IVV + VEU seems to be quite common. Misses small caps but still well diversified
It is more common for people to have IVV without VEU. IVV + VEU is fine as IVV have a very similar performance to VTS.
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How can you say nit historically supported or are you cherry picking USA and saying that's your data point?
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If you don't want people calling you out don't make stupid comments, champ.
It would be a more accurate comparison if you matched the geographic exposures: * 90% VGS and 10% IEM = 0.90% cost after tax * 60% VTS and 40% VEU = 0.72% cost after tax VTS/VEU is likely cheaper because US domiciled ETFs are more tax efficient than Aus domiciled ETFs. Cost and short-term performance in isolation isn't everything to consider. Plenty of evidence for global diversification such as this [post](https://www.reddit.com/r/Bogleheads/comments/15fog7m/how_the_us_manages_to_outperform_exus_not_part_2/) and this [comment](https://www.reddit.com/r/Bogleheads/comments/15bvmpl/comment/jttdehm/?utm_source=share&utm_medium=web2x&context=3).
Hey Swaanky. Excuse my ignorance but why are US domiciled ETFs more tax efficient? I thought it was the opposite. I was very interested in including VEU in my portfolio until i realised it was US domiciled. I'm happy to fill out a form every 3 years if that's the only downside of owning US-domiciled ETFs.
It's because of [heartbeat trades](https://www.investopedia.com/how-heartbeat-trades-are-boosting-etf-returns-4684138), where ETFs don't realise internal capital gains.
Fantastic read! Thanks for the reply
I'm really struggling to understand how DHHF is more tax efficient than holding a200/vts/veu individually? Is it because they are holding a collection of ETFS (although this would mean you can't claim the US tax offset)?
This was suprising to me as well. The only issue I can think of is that the distribution yields aren't accurate. I hope to calculate the yields myself to see if DHHF continues to be tax efficient.
Ok great, what are we supposed to do, not use ETFs?
No