Author Topic: Blog post: Your unit trust doesn’t cost you 1.7% a year it costs you R15 897...  (Read 552 times)

Patrick

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http://investorchallenge.co.za/your-unit-trust-doesnt-cost-you-1-7-a-year-it-costs-you-r15-897-a-month-you-fool/

Hamster

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Do you factor in brokerage, platform and trading costs of buying ETFs?

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Patrick

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No, but if we look at the brokerage + platform + spread costs they really are minimal. ABSA's ETF only account charges 0.2% brokerage. There's no platform cost, and the spread for ASHT40 is just 0.14%.

I just ran a trial transaction on R10000 worth of ASHT40 and the total cost came to R36, so a 0.36% fee. Works out nicely if we add the spread of 0.14% we get to a total transaction cost of 0.5%.

Now R10 000 over the next 30 years + 900000 will give us a total purchase value of R4.5 million. 0.5% of that is just R22500. That barely makes a blip on the radar, the ETF is the way to go.

I know Magda from Sygnia keeps pushing her unit trusts, but even though I'm a huge fan of hers, she's not right in saying ETFs are more expensive. That's only true if the ETF and the unit trust have the same TER, but with Sygnia's 0.4% TER vs Ashburtons 0.18% TER there is just no contest. The ETF wins hands down by nearly R750k using the example in the article, and reducing the contributions by 0.5% a month.

You can see the two calculations for Sygnia here and Ashburton here.



Hamster

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So if we consider costs it does bring into question the case for investing in NFEMOM and similar ETFs. The TER is very high but that's because it is trading every month, borderline active management. It's outperforming the regular Top 40 by quite a bit but with an effective TER of 1.57 it's roughly 8x more expensive.

So what does one do...

And then there is DIVTRX with very good returns that can rival NFEMOM, higher dividends and is much cheaper. In a TFSA it seems to make no sense for anyone to hold NFEMOM over it. Anyway, I'm going off point.