When considering any new investment it’s a good idea to assess both the pros and the cons of that particular investment idea. This article is about some pros and cons to consider for BetaShares Australia 200 ETF (ASX: A200).
The A200 ETF is one of the most popular ETFs in Australia. It tracks the 200 largest companies listed on the ASX and it is around $1.6 billion in size.
Let’s start with the pros
The annual management fee is 0.07% which is very low in the ETF world. Fees are important to consider with any investment and higher fees can drastically eat into returns over the years.
If an investor had $5,000 invested in the A200 ETF for a full year that would come to around $3.50 in annual fees, I think that’s a great low cost.
BetaShares boasts that its A200 ETF is currently the world’s lowest cost Australian shares ETF, with an asterisk of course. The asterisk is that additional costs, such as transaction costs, may apply.
ETFs are known for their total returns, and most often that comes from growth. It is especially hard to come by decent dividend yields in this low interest rate environment.
For investors who do fancy dividends, the A200 ETF has a trailing yield of 2.2% which becomes a 2.9% yield once franking credits are included.
Often one of the hardest parts of investing is deciding when to sell. Having dividend income as part of an ETF is appealing because it makes some of the cash returns almost as hands off as the investment itself.
Cons to consider
Banks and miners dominate the ASX
Being an exchange of banks and miners is a diversification issue that the ASX is known for. The A200 ETF mirrors this with 30.3% of the ETF made up by financials and 19.5% being materials. That means 49.8% of this ETF is made up by just two sectors.
The top 10 holdings confirms it with Australia’s ‘big 4’ banks Commonwealth Bank (8.5%), Westpac Bank (4.5%), National Australia Bank (4.4%) and ANZ Bank (3.8%) making up 21.2% of this ETF between just the four of them.
This ETF wouldn’t give strong diversification as a sole investment because of how heavily weighted the ASX is towards financials and materials.
The blue chips that dominate this ETF pay out large amounts of profits in dividends and are not reinvesting in themselves as much as global blue chips like Microsoft and Apple. The ASX blue chips have likely seen the hay-day of their growth and don’t have large growth runways ahead of them.
The A200 ETF is a solid choice for a hands-off approach to investing across the ASX. It has lots to like about it and having low fees is a real draw-card.
I think this ETF would do well to be part of a portfolio, as it doesn’t tick the diversification boxes to be the only holding for an investors portfolio.
If the goal is strong overall returns or growth, there would be other ETFs worth considering that would probably be more likely to match higher return expectations.