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How to invest in the ASX 200
Want to invest in Australia’s benchmark stock index from New Zealand? Here’s how.
The S&P/ASX 200 is a list of the largest companies on the Australian Securities Exchange (ASX). Commonly referred to as simply the ASX 200, this index tracks the performance of those companies.
Keep reading to find out how the ASX 200 works and to learn about the different options for investing in the ASX 200.
What is the ASX 200?
The ASX 200 is an index of the 200 largest companies listed on the ASX by market capitalisation. This includes major Australian companies like Commonwealth Bank, BHP and CSL, but you will also find plenty of New Zealand companies which are floated on the ASX on there, like Fisher & Paykel, Chorus and Spark.
The ASX 200 is used to track the overall performance of the shares of these companies, with its value expressed in points. You may have come across the names of other indices in countries around the world, such as the S&P 500 in the USA and the FTSE 100 in the UK.
Which companies are in the ASX 200?
Browse the list of companies in the ASX 200 and you’ll see plenty of familiar names. These include:
- Australia and New Zealand Banking Group
- BHP Group
- Commonwealth Bank
- Coca-Cola Amatil
- Fisher & Paykel Healthcare Corporation
- Fortescue Metals Group
- Harvey Norman Holdings
- Macquarie Group
- National Australia Bank
- Qantas Airways
- QBE Insurance Group
- Rio Tinto
- Spark New Zealand
- Sydney Airport
It’s also possible to buy and sell shares in these NZ companies on the New Zealand Stock Exchange (NZX). These and other big companies are included in the NZX 50, the index that tracks the performance of the top 50 companies listed on the NZX by market capitalisation.
How has the ASX 200 performed historically?
In the 10 years to November 2020, the ASX 200 largely experienced solid growth. From a low of just above 4,000 points in September 2011, the index climbed to almost 6,000 in February 2015, a rise of more than 47%.
After dropping down below 4,900 points one year later, the ASX 200 then climbed more than 40% to exceed 7,000 points by the end of January 2020. Then, with the arrival of the COVID-19 pandemic, it plummeted to under 5,100 before climbing back up to 5,927 by the end of October 2020.
Pros and cons of investing in the ASX 200
- Access to blue chip companies. Investing in the ASX 200 allows you to invest in some of Australia’s largest companies.
- Invest in the economy rather than just one company. Investing in an index allows you to track the performance of the overall economy rather than relying on the success of just one company. This allows you to take advantage of economic growth.
- Easier to access than many other foreign markets. Thanks to the close ties between Australia and NZ, there are multiple options to choose from when you want to invest in the ASX. Scroll down a little further to find out how you can invest.
- May be exempt from Foreign Investment Fund (FIF) rules. Shares in many ASX-listed companies are exempt from FIF rules. Check with Inland Revenue for more information.
- Exchange rates. You’ll need to factor in the cost of exchange rate margins when you convert NZD to AUD to place a trade, and then when you convert back to NZD to cash out.
- Brokerage fees and fund fees. While some providers offer low-cost brokerage fees if you want to invest in the NZX or US stocks, fees for investing in Australian shares still tend to be quite high.
- Tax obligations. Tax is payable on Australian dividends and you can’t claim Australian franking credits as tax credits in NZ.
- Organising dividend payments. You’ll also need to sort out whether you’ll receive dividend payments in AUD or NZD, plus how you’ll cope with currency exchange costs.
- Lack of knowledge. You’ll need to understand the factors that affect the performance of the Australian economy and ASX 200 companies if you’re going to have any chance of trading successfully.
How can I invest in the ASX 200?
Invest in an index fund
The first option is to invest in an index fund. An index fund is an investment fund designed to track the performance of a specific index, such as the ASX 200.
The main advantage of index funds is that they offer a simple way to gain exposure to a range of companies. This allows you to diversify your portfolio and leave the hard work of choosing which companies to invest in up to the fund provider.
There are a few different ways to access funds that track the ASX 200 from NZ.
|Smartshares||Smartshares is an online investment platform that offers access to a range of exchange-traded funds (ETFs), including the following that track the Australian market:|
Fees vary depending on the ETF you select, with the S&P/ASX 200 ETF attracting a fee of 0.30%. A one-off setup fee also applies.
|InvestNow||InvestNow provides access to more than 140 NZ and global managed funds, including the following Smartshares ETFs:|
It also offers other funds that invest in Australian shares, including offerings from AMP Capital, ANZ Investments, Devon, Fisher Funds and Milford.
|Sharesies||Sharesies provides access to shares, managed funds and ETFs in NZ and on US markets, including all of the Smartshares ETFs listed above.|
|SuperLife||You can also access all of these Smartshares ETFs via SuperLife. For more details, take a look at our SuperLife review.|
Buy shares on the ASX
The second option is to trade shares in S&P/ASX 200 companies through an online share trading platform. ASB Securities and Direct Broking are two online brokerage firms that provide access to the ASX, while you may also be able to open a share trading account with an Australian bank.
You could buy shares in one or a few different companies, or you could attempt to create a portfolio that mirrors the ASX 200. However, the latter option is not only very difficult, but the ASX’s minimum initial trade size of $500 also makes it quite expensive.
|ASB Securities||ASB Securities provides access to both the NZX and ASX, allowing you to trade Australian shares and ETFs. The brokerage fee is 0.30%, with a minimum fee of AUD$30 per trade.|
|Direct Broking||Direct Broking customers can also apply to buy and sell shares on the ASX, as well as the NZX. The brokerage fee is AUD$29 for trades of up to AUD$30,000, and 0.30% for any portion of the trade value that exceeds that amount.|
There are several reasons why you may want to consider investing in the ASX 200. Doing so allows you to access a wide range of blue chip companies, diversify your portfolio, and benefit from wider economic growth.
However, just like any other form of investing, it comes with certain risks. In addition to all the usual risks of share trading, you’ll need to take into account factors like exchange rate margins and how you’ll receive dividend payments.
You’ll also need to wrap your head around what drives the Australian share market up or down — while there are plenty of similarities between our two countries, that doesn’t mean our economies are the same.
Ultimately, make sure you do your research before jumping in. Compare the different options for investing in the ASX 200 before deciding which is the right approach for you.
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