"
Recently Clark Kent has spent considerable time analysing STW which, according to State Street, is a tracking ETF for the XJO.A question for CK - Given your analysis, would you say that STW is not a tracking ETF for XJO?
Redbacka."
Let'sget a few things straight.
Firstly, I read your weekly post, it's a good wrap of the market.
However, your STW write-up is inaccurate.
Had you just said that STW is a tracking ETF for the XJO, fine.
But that's not all you said. In a previous post you claimed:
"XJO can be a bit deceptive on a chart as it always opens at the same levelas the previous day's close .Neverany gaps on an XJO chartSTW is atracking ETF for the XJO and can often give clues as to investors' thinking notavailable from the index."
In other words, you claimed that the chart of STW contains more information than the Index it tracks.
This is 100% wrong. The amount of additional incremental info contained in the chart of STW over that of XJO = zeroFor starters, lets look at the claim that the chart of XJO does not gap.
If as we all agree, the XJO is an aggregation of the prices of its constituent 200 companies, how can the XJO open at the previous days' close when the price of BHP, one of its major constituents gapped down by -3.7% when it went ex-dividend last Thursday?
Fact: The value of XJO becomes
history at precisely 4:00 each trading day.
There are 24-hour markets for the XJO, the ASX200 on IG Markets being a familiar one to posters on this forum.
AT precisely 4:00 each trading day, IG immediately adjust their ASX200 quote to reflect capital events such as dividends scheduled for the
following day.
Thereafter, ASX200 trades according to the usual supply/demand market forces, at prices which are totally unrelated to the previous 4:00 pm close.
The following morning, when the ASX starts trading, the sequence of events is:
1) All stocks begin trading.
2) The level of the XJO is determined
after, and
not before, the opening price of its 200 constituents is known
3) The NAV, and hence price, of STW is determined
after, and
not before, the opening price of its 200 holdings is known
If the above was not the case, the most basic arbitrage would be available and the pros would be all over it.
For example, last Thursday, traders would be selling ASX200 at the previous day's cum-dividend price and covering moments later at the ex-div price, harvesting the dividend, a free lunch.
Long story short, the yesterday's XJO is not available the following morning, unless by coincidence.
The final point I made, in a previous post was technical and it concerned whether STW's price behaves as per XJO or XJT, the ASX 200 Total Return Index.
I wrote:
Day-to-day STW does not track XJO but rather XJT.
This is because when a company goes ex-div, the XJO goes ex-div with it, whereas STW and XJT accrue the dividend.
As more and more companies go ex-div, the gap between STW and XJO widens and STW moves as per XJT.
This is where we are now:
At the beginning of each quarter, STW and XJO align.
Thereafter, a gap develops between STW and XJO, and STW moves in tandem with XJT.
When STW itself goes ex-div at the end of the quarter, it will re-align with XJO, which is always ex-div and the cycle begins again.
This is what happened this time last year:
(20min delay)