We’ve previously compared ETFs1 against index funds on the basis of:
Now we consider choice, and after two losses and a draw, it’s here that ETFs finally land a blow against their index fund brethren.
There’s simply much more choice when it comes to ETFs, especially if you want to invest beyond the major indices.
Indeed, sometimes you’ll have no choice but to pick an ETF if you want to track certain asset classes. As I write, there is no index fund aimed at UK investors that covers:
- Property
- UK Small Cap
- Value
- Commodities
So if you want a diversified portfolio that includes any of those asset classes, ETFs will have to be part of your mix.
Too much ETF choice?
The ETF population has exploded over the past ten years like rabbits bounding over virginal Australia. They’ve burrowed into almost every conceivable market niche – and yet still the financial engineers keep tinkering and dreaming of new ones!
You want to track a Christian friendly index, or a fish food benchmark?
You can!
You want to bet on the prospects of renewable energy?
You can with ETFs – but not with index funds.
Of course, once you step off the broad avenues of the main indices, you can find yourself up some pretty dark alleyways that harbour all kinds of exotic offerings. Make sure you keep your wits about you.
Also, keep in mind that not all things with ET in the title work in exactly the same way. For example Exchange Traded Commodities (ETCs) are a quite different barrel of fish.
Take it steady,
The Accumulator
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Enjoying this series of articles.
Just one small thing. Miracle of miracles, there is actually a non-ETF property tracker. The BlackRock Global Property Securities Equity Tracker is a unit trust that follows the FTSE EPRA/NAREIT Developed Net Total Return Index. Class A (Acc) units (ISIN: GB00B670Q951) have a TER of 0.88%. It is available from Hargreaves Lansdown (although not listed on their website yet) with the 5% initial charge fully discounted and usual regular investment terms (min. £50 monthly); other broker options are limited, I think, but DYOR.
http://www.blackrock.co.uk/content/groups/uksite/documents/literature/1111136072.pdf
http://www.blackrock.co.uk/content/groups/uksite/documents/literature/1111134424.pdf
For anyone who’s interested, I rambled about various global property tracker options (the above fund and ETFs) in the comments of this thread:
http://monevator.com/2010/10/19/9-lazy-portfolios-for-uk-passive-investors-2010/comment-page-1/#comments
@saveonarole — Thanks for that, good spot! Only a year old, and it seems to be lagging its benchmark by quite a bit at first glance, but I’ll leave The Accumulator to run his seasoned gimlet eye over it.
A fellow Monevator reader was after a passive property fund the other day, so hopefully he’ll see your comment!
Hi Investor,
I know you mention in the article that there are now loads of ETF choices in the UK.
Have you spent much time researching US based ones? In my view the choice and sophistication of some ETF’s particularly those that are dividend based are terrific. E.g. HDV & DVY when compared to UK based ones.
Additionally, the cost of dealing in US stocks has now come down dramatically to virtually the same as UK dealing cost and in some cases lower.
I just wondered if the level of sophistication of US based ETF product may make building “lazy portfolios” easier with greater targeting ability.
Any thoughts?
Kind regards
Mark
Great article. Try http://www.etfexplorer.com/ for ideas.
Happy researching.
Thanks for the really informative posts, they are great inspiration for any aspiring passive investor.
I would like to add ETFs to my current set of trackers, but not sure it will be cost effective with HL’s 0.5% AMC (£200 max). Would it be cost effective to look for a cheaper platform that offers better deals on ETFs or is that really not bad for a starting point? I’m thinking maybe SippDeal or BestInvest will be cheaper in the long run.
@ Nibbler – iii won’t charge you an AMC. I definitely wouldn’t want to pay out 0.5% to a platform when cheaper alternatives are available.
@ Mark – investing in US ETFs always seemed a complication to far for me with a lazy portfolio. The only asset class I was interested in that I couldn’t get over here was a value / small-value fund. Still, you’ve piqued my interest, think I’ll take another look at it.
@ Frugal – Thanks! ETF Explorer is a great site.
@ Saveonarola – Will take a look at the Blackrock fund as soon as. I’ve discovered snags with them before that prevented me investing but perhaps it’s easier now.
@nibbler
to be honest theres not much in it, I’m assuming you’re talking about SIPPS here, HL will charge you 0.5% capped at £200, iii don’t have this charge but do have a fixed £120 AMC.
Alliance trust charge a £200 AMC but give you access to Vanguard products, I think Sippdeal are £12.50 per quarter which seems pretty cheap
so swings and roundabouts really
Accumulator & Ben. Thanks, as I understand it there may be changes to the charging structures of platforms with RDR next year.