There are several ASX ETFs designed to track the S&P/ASX 200 (INDEXASX: XJO) but only one to track the top 50 companies on the ASX. How does the SPDR S&P/ASX 50 Fund (ASX: SFY) compare?
What Are ETFs?
Exchange-traded funds, or ASX ETFs, are investment funds that are listed on a stock exchange and provide exposure to a range of shares or assets with a single purchase.
This video explains:
SPDR ASX 50
The SPDR S&P/ASX 50 Fund, as the name suggests, provides exposure to the 50 largest companies on the ASX. You know the ones: Commonwealth Bank (ASX: CBA) BHP Group Ltd (ASX: BHP), CSL Limited (ASX: CSL), the usual suspects.
As for why you might only wish to hold the 50 largest companies, there are a couple of reasons. First of all, the 50 largest companies actually make up around 80% of the total Australian equities market capitalisation so you can get exposure to most of the market with only these companies.
Second, the largest companies also tend to be the most frequently traded, so liquidity is virtually never an issue with these companies.
The fund has had similar returns to the BetaShares Australia 200 ETF (ASX: A200) and the ASX 200 Index. Over the last year, the ASX 50 Fund has returned 11.27% compared to 9.05% for A200.
Over a three-year period, the ASX 50 Fund has returned 11.66% per year compared to 11.39% per year for the ASX 200 Index.
One of the big advantages of the ASX 50 Fund is the quarterly distributions. The ETF currently offers a trailing dividend yield of 4.49%.
Fees And Risks
Management costs for this ETF are 0.286%, significantly higher than the 0.07% management fee of A200. Although the ASX 50 Fund comprises 80% of the market, the A200 ETF still offers stronger diversification benefits and gives access to some of the fast-growing companies that are just entering the index.
The ASX 50 Fund is heavily weighted towards financials, with more than 37% of the fund invested in the sector.
My Take
The ASX 50 Fund may be an option to consider but personally I would, and actually already did, pick A200 because of the superior diversification and lower fees for more or less the same return.
For our number one ETF pick, check out the free report below.
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Disclosure: At the time of writing, Max owns shares in the BetaShares Australia 200 ETF (ASX: A200).
