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Wednesday, 28 November 2018

The You Being Ripped Lookup Table

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Sometimes being ripped is cool,
sometimes it isn't
South Africa has come a long way in the ETF space - 18 years ago the Satrix 40 ETF was the only available option, these days there are more than 70 different ETFs available. As a result, for a lot of indices, there are now multiple providers offering ETF products - for example there are now four Top 40 trackers to choose from.

This is great, because it means that competition is hotting up, and as a result costs have been coming down – for example the original Satrix 40 is now available at a TER (Total Expense Ratio) of just 0.1%. Peanuts!

On the downside, the availability of lower cost options means there is a chance you may no longer be in the cheapest (pronounced best) index tracker for the type of exposure you are looking for. (This happened to me when I recently revisited some of the Property ETFs I was invested in).

So I thought it would be interesting to check out which ETFs have become expensive as some competitors offer cheaper alternatives and others slash their TERs.

In the table below I listed the most expensive ETFs which track a specific index, and then compared their TER (fee) to the cheapest option which tracks the exact same index. So basically most expensive versus cheapest for the same index.

To get an idea of how much more expensive the priciest option is compared to the cheapest option. I also defined something called the Rip Off Factor (ROF). This number represents the multiple of how much more expensive the rip off ETF is compared to the cheapest option – i.e. Cheapest Option TER x ROF = Most Expensive Option TER. The higher the ROF, the more you are getting ripped by being in the expensive product.

The results are in the table below (sorted form highest ROF to lowest ROF). If you are in invested in any of the ETFs on the left hand side of the table, I have some bad news for you! Conversely if you are invested in any of the ETFs on the right hand side of the table, you deserve a pat on the back.


Like for like comparisons are quite easy – stuff tracking the same index is directly comparable. However there are also some ETFs which are pretty pricey, and although there is no direct cheaper equivalent, there is a pretty similar option (although not an exact like for like – weightings of the underlying constituents may not be exactly the same, or a total return version of a similar ETF.)

So I did a similar exercise for some of these. The results in the table below.


I must maybe just mention a few things about these tables:
  • The TER's are all taken from September 2018, which was the latest date for which all ETF providers had published their TER's. This means that:
    • Some providers may have newer MDDs out with updated and possibly different TERs. So you may see some slightly different values to the tables above.
    • This article will age - if you stumble across it a few months/years after it was published, there could well be newer options available, and/or some of the existing providers may have lowered their costs (here's hoping!)
  • TER is not the only cost you need to consider. The different ETFs also come with different spreads (the difference between the buying and selling price of the ETF) depending on the market maker and popularity (liquidity) of the ETF. While a higher spread is not ideal, over the long term (and since the above ETFs are all equity ETFs, they should be for the long term) the effect of the spread diminishes, and a lower TER becomes far more important if you want to get the maximum out of your investment.
  • It is interesting to see that sometimes one provider can be the cheapest for a particular index's ETF, but then a rip off for another. This is why I generally don't like signing up on a specific providers platform, because in addition to the platform fee you will pay, you are also limited to buying only that provider's ETFs (unless you are willing to open an account with every provider). That's why something like Easy Equities is great - no platform fee and the full range of ETF's (including any new ones that may come to market).
  • It is disappointing to see CoreShares appearing a little too often in the left hand column (and not once in the right hand column). I used to rate CoreShares quite highly after they launched some new and at the time cheap ETF options. But lately I have been getting this feeling that they are just starting to fall a little behind the curve. While companies like Satrix and Sygnia have been lowering costs or launching dirt cheap ETF's, CoreShares seem to be stagnating a little. Hopefully that changes soon!

What To Do If You Are Invested In An Expensive ETF?

So what do you do if you find yourself in one of the expensive ETF’s listed in the tables above?

Well, the immediately obvious choice is to stop contributing more money to the ETF. Ensure all future money goes into the cheaper ETF.

The next thing to consider is to move your current investment in the expensive ETF into the cheaper ETF. However, depending on your time-frame, this is not always a clear cut decision. You see, it costs money to sell an ETF and buy another one – you need to pay brokerage, cross spreads etc. Fortunately the cost of moving over is a once off, and the savings from the lower ongoing TER costs will eventually make up for the cost of moving – but this all depends on your time-frame. If you are in it for the long haul, it more than likely makes sense to move...





Till next time, Stay Stealthy!
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