Battle of the index funds: Europe fund

Welcome to round 8 of the battle between the heavyweights. If you haven’t done so already, check out the introduction that sets the tone to this heavyweight battle.

Today we are comparing the costs of investing in the Europe fund. We will be comparing the cost between the lowest cost fund providers that can be summarised in the tables below.

Current as at November 2018

Current as at November 2018

The Europe fund is a stock market index fund and is ideal for investors buying for the long term (10 years plus), that want to invest in European companies and are able to accept some market volatility. The companies in the Europe fund index consist of a wide range of sectors within developed European countries such as France, England, Switzerland and Germany to name a few. The largest company in the fund currently makes up no more than 2.5% of the total fund and the top ten companies make up just 15% so it is a well diversified fund.

This fund should ideally make up a relatively small percentage of someones portfolio. More international exposure and asset classes are needed for a more balanced portfolio.

All funds are identical in the sense that they track the same companies in the Europe fund index. All companies invest via the Smartshares EUF fund, with the only difference being each companies cost structures and user platforms.


THE DATA

For the data I have assumed investor annual contributions of $600 to meet Smartshares and InvestNow minimum requirements for a level playing field.

For this fund I am assuming a 6% return after costs for all funds.

For the brokerage selling fees I have used ASB Securities rates and fees. Only Smartshare customers incur selling fees for this fund.

The numbers on the following tables is the price of the fund if it were to be sold at that period in time.

With that out the way, lets have a look at how the fees stack up for an investor who has an investment worth $100, $1,000, $10,000, or $100,000.

INVESTING $100

Smartshares and InvestNow are not an option for the $100 investor due to their minimum start up requirements of $500 and $250 respectively. Simplicity does not offer this fund.

That leaves just Sharesies and Superlife as available fund providers.

Superlife comes out well ahead, thanks to a lower annual administration fee of $12, compared to $18 for Sharesies. The Superlife management fees of 0.49% are also a significant 0.06 percentage points cheaper than Sharesies 0.55% management fee.

At this level of investing we are looking at a $1,000 difference over 30 years for the same fund.

The other key difference between these two companies is if your income is less than $48,000 you will need to do a tax return for your Sharesies fund. You do not need to do this for the Superlife fund.

Also note that both these companies use a flat administration fee as part of their charges. For a $100 investor, this can make up a huge chunk of your contributions. It is not until year 8 that your fees become a more reasonable 0.7% with Superlife, and year 20 with Sharesies. If you sell in year 1 your fees will be more than 2%.

Winner Superlife

INVESTING $1,000

Smartshares and InvestNow are now able to enter the championship ring.

Sharesies is again the highest cost provider across pretty much all time ranges. Over 30 years, there is a difference in costs of $1,000 between Sharesies and the rest of the competition.

Sharesies fund takes 19 years to get to an annual cost of investing of below 0.7%. It’s a long time, and explains their poorer performance.

There is little between Superlife, Smartshares, and InvestNow at this stage.

Winner InvestNow

INVESTING $10,000

Superlife has gone from being second bottom for the $1,000 investor to top dog for the $10,000 investor after 30 years. This is thanks to them having a lower management fee than the other three funds. This has a larger effect with higher investing amounts and their flat $12 administration fee starts to have a smaller impact too.

It does take the Superlife customer 16 years to be better off than the InvestNow customer though.

Sharesies is now almost $3,000 behind Superlife after 30 years,

Winner Superlife

INVESTING $100,000

Smartshares has suffered from this increase in investments, falling off the pace. The reason for Smartshares poor performance with higher investing values is the high brokerage (selling) fees of 0.3% having a big impact on higher values.

Sharesies still comes in last, but it is gaining on Smartshares. In fact, once we extrapolate out to an investment amount of $140,000 Sharesies will overtake Smartshares. This is a combination of Smartshares selling costs and Sharesies administration fee having less of an impact on larger amounts.

Sharesies and InvestNow will never catch Superlife thanks to Superlife’s low management fee. The gap grows as values get higher.

The $12 Superlife administration fee does not have as big an impact when investing in higher dollar amounts too.

Winner Superlife

FINAL THOUGHTS

Superlife is the clear winner for all time periods where the investing amount is greater than $4,000.

If you have between $250 and $4,000 then your best bet is InvestNow.

When I say winner, I mean the fund with the lowest fees. Lowest fees does not always mean the best fund for you, so please carefully consider the other features of the different funds highlighted in the introductory article of this 12 part series and make sure that in addition to low fees, the fund also matches your portfolio strategy and is easy to understand.

Next up we will look at the heavyweight fight - worldwide funds.


The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here