How to buy your first index trackers

Hi Dave, How long is a piece of string?!

Great stuff and great timing for me, I’m just about to purchase my first index tracking funds and ETFs – with TD Waterhouse and Alliance Trust, both provide regular investment options at 1.50 a fund.

I’ve not looked into it too much yet, but neither seems of offer a good portfolio tracking service suitbale for the needs of a long-term index tracking investor (especially if split between two companies!).

At the minute I’m leaning towards twisting my head around an excel spreadsheet that will enable me to calculate the overall real return of my portfolio each year.

The tools provided through the companies above for comparing fund performace against thier indexes are OK for assessing individual fund performance, but not, as far as I can see, overall portfolio return.

Any suggestions anyone? How do you manage to track your portfolio periodically – both for assessing the need to rebalance and estimate overall real return?

http://www.commfreefunds.com/index.aspx

This lot give you all the commission back (up front and annual) and charge flat £60 fee pa.
Probably works in your favour at around £12,000 plus investments on the ongoing charge.
Some brokers (e.g. HL) may however be able to outprice these folk with further discounts from the fund house.
Personally i go for functionality on the platform and have opted for Barclays Stockbrokers – accepting that i will pay a bit more on some funds but can deal when i want in a wider arrary of instruments.

@ Dave R – it’s a personal choice. There’s plenty of evidence out there to suggest that constant peeking at and fiddling with your portfolio is detrimental to most investors. Once a year is an oft quoted rule of thumb for very horizontal investors.

@ Neil & Ben – from the H-L website: ¹ Additional annual charge of 0.5% + VAT is applied to this fund when held in the Vantage ISA and SIPP (capped at £200 + VAT per account). This additional charge is not accounted for in the Total Expense Ratio quoted above.

It doesn’t affect HSBC index funds but looks like it does affect L&G e.g. http://www.hl.co.uk/funds/fund-discounts,-prices–and–factsheets/search-results/l/legal–and–general-all-stocks-index-linked-gilt-i-accumulation
Look out for the subscript 1 on the annual charge. Refers to the footnote I quoted above.

@ Dave – I use Morningstar’s portfolio manager: http://www.morningstar.co.uk/uk/membership/signup.aspx?loginType=1&lastvisit=%2fuk%2fportfoliomanager%2fportfolio.aspx%3flang%3den-GB
I did try Trustnet’s version but it had accuracy issues.

@ Paul – there’s no up front or annual commission to collect on index funds. You needn’t pay an annual fee at all.

@Accumulator

Correct on the L&G vs HSBC, I nearly came unstuck here by buying an L&G Gilt tracker but another eagle eyed monevator reader spotted it so I swapped to the HSBC equivalent

Incorrect on the annual charge (*I think*). The 0.5% fee you mention is specific to funds with no renewal commission not a blanket charge on the vantage ISA. The text from the HL charges page is as follows

“0% for cash and funds that pay renewal commission (more than 2,100 to choose from)

0.5% for all other investments, capped at £200 a year”

@ Neil

Yes – I have purchased that particular fund so had found that out

Useful debate on ETFs between two UK fund managers, Terry Smith and Alan Miller, in today’s ‘Telegraph’: http://www.telegraph.co.uk/finance/personalfinance

@ Ben – I’m quoting directly from the H-L website. I’m not saying the 0.5% applies to the whole ISA. I agree that it applies to specific funds – the ones that twinkle with a subscript 1.

Thanks for pointing out the H&L charges (that I clearly should have spotted myself). Unfortunately, I´ve made a mistake and have the Legal & General All Stocks Gilt Index Trust as part of my portfolio with the additional 0.5% charge. Dang.

It also seems that H&L don´t do the HSBC equivalent ´HSBC UK Gilt Index Fund´ either which is a pain.

What would people suggest I do? Hold onto the L&G Gilt tracker until H&L start providing an equivalent (with low ter) I can then switch to? Or sell up now, and have my defensive Gilt trackers with another provider?

@Ben
Thanks very much for the info. I’ll give them a bell.

Robin,

H&L do offer the HSBC UK Gilt Index fund. I hold it in my SIPP account. They haven’t added it to the list of funds under HSBC header as yet. Also you can not deal it online. They only accept telephone or written dealing instructions. It is available for regular investment with them. I suspect they wish to steer people to managed Gilt funds where they make money. I was the eagle eyed individual who pointed out to Ben that the HSBC UK Gilt Index fund was an alternative to L&G with HL. I’m still waiting for HSBC to launch Global Bond Index fund and Emerging Markets Index fund as alluded to before they launched the Gilt Index.

William/Ben – that is a really great find; I just triple-checked that with them! You guys are going to save me 60+ basis points in charges on my SIPP gilt holdings

To answer my own question: yes, you can put a lump sum into HSBC’s UK Gilt Index fund within HL’s ISA without either an initial charge or the .5% annual surcharge which clobbers the L&G. Just did it by phone.

For index-linked gilts, Royal London seems the best bet in the HL ISA, with a TER of .4% (not of course 40% as I said above).

I would like to see a forum (not that I’ve fully explored Monevator’s existing resources yet). I’ve learned more per minute’s reading time from Monevator than anywhere else; it would be nice to be able to start new question threads here.

I should have said above that the Royal London IL gilt fund is not a tracker and therefore strictly off-post. That and a TER of .43% would rule it out for many, but as far as I can see its performance is very similar to the L&G IL gilt index (.25% outside the H-L ISA, but uneconomic inside it). I think the Royal London in an ISA should beat the L&G outside an ISA at performance levels above .9% a year, since a fifth of that is reclaimed from HMRC; better still for higher rate taxpayers.

If anyone knows better ways for a passive investor to maximise tax efficiency with the H-L ISA, I’d be grateful to hear. (I’m tempted to try some other managed bond funds, on the grounds that the tax saving is equivalent to a TER reduction.)

As an update to the above, the HSBC UK Gilt Index is now listed on the HL website :

http://www.hl.co.uk/funds/fund-discounts,-prices–and–factsheets/search-results/h/hsbc-uk-gilt-index-accumulation

I also contacted HL about the HSBC gilt fund, on the very day they listed it!

How does this look?

HSBC FTSE 100 = 15%
HSBC FTSE 250 = 10% (too much?)
HSBC American index = 20%
HSBC European index = 10%
HSBC Japan index = 5%
HSBC Pacific index = 10%
L&G Global EM index = 10%
HSBC UK Gilt index = 5%
Royal London Index linked gilt = 5%
Blackrock Global Property Securities tracker = 10%

Is 25% in the UK too much of a home bias? Am I too heavy on FTSE 250 versus 100? Any other feedback?

That property fund is another HL ‘phone job, TER=0.88 and no additional 0.5%

Yup, 10% gilts is comfortable, and I might even hold off before buying these – yes, 100% equities! But gilts are in bubble territory based on yields, whereas equities look bargain basement.

Regards FTSE, I did look at all share, buy want a small.mid cap boost. Of course, I’d like a US small/mid cap boost too, but that’s harder.

I’ve just heard that HL are about to start charging £2 per month per HSBC tracker.
http://forums.moneysavingexpert.com/showthread.php?t=3620493

I’m staring at the Interactive Investor site, but can’t find the HSBC trackers there. Am I cracking up?

I might go with Fidelity, but there is no low-cost property REIT tracker.

Dammit, we want a pension containing trackers of various “cap sizes” in UK, US, Europe, plus a bit of global, EM, Pacific and Japan, and we want to hold gilts and property alongside.

We want an overall TER sub 0.5%, ideally very sub.

Should it really be this hard?

@ Gadgetmind – go to investing > find and invest > select HSBC Investments (UK) in company search field. The index funds turn up in that list. No, it shouldn’t be this hard.

@ Ben – You could try Alliance Trust, Bestinvest and Sippdeal for a SIPP.