An Index Fund is an investment fund which track the performance of an equity index without without the discretion of deviating from the benchmark through overweighting or underweighting companies.
Index funds that are listed on the Australian Stock Exchange are also commonly known as Exchange Traded Funds (ETF). STW is the second largest ETF from the list of ETFs traded on the ASX.
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.
Why is The ASX 200 Index Important?
When investors are taking about the Australian share market, most of the time they are referencing the ASX 200 index.
ASX 200 Return vs Rest of the World
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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).
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.
12 Month STW Price Chart
Since STW mirrors the ASX 200 with difference due to fees. The index chart is a good representation of the 12 month price movement of the ETF.
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STW Sector Weights
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Exhibit below breaks down the sector composition of the stocks in STW. Unsurprisingly as STW track the ASX 200, the sector composure exactly mirrors the underlying index with limited tracking error.
Similar to the other major Australian market indexes 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 almost half o the fund with the concentration driven by the Australian bank shares and BHP/RIO.
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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
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The STW distributions are paid quarterly based on the following times of the year.
Q1: October
Q2: January
Q3: April
Q4: July
1 Year Performance of STW
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There is a slightly difference in the price performance of STW ASX vs compared to the market index due to fees.