Ever since we started tracking the Slow & Steady portfolio, I’ve been able to fill up my notepad with pages of economic woe between updates.
And even though real news – such as which semi-naked royal has been caught in front of a zoom lens this time – is now making a comeback, my trusty misery detector tells me:
- The US economy grows like a malnourished child whose mum smoked 60 a day during the pregnancy.
- Europe and the UK continue to wallow in recession, while Spain dithers over its bailout.
- Food prices are on the rise after US crops wilted during the summer drought.
- Petrol prices tick up every time the Israelis and Iranians beat their chests.
- Emerging market growth has sagged.
But all that creeping doubt was blown away by Draghi’s promise to hoover up European debt, the Fed priming the QE3 pump, and Britain coming third in the Olympic medal table.
How else do you explain the Slow & Steady portfolio’s surge to an all-time high of a 5.22% gain since purchase? That’s a year-to-date gain of 7.45% and a 14% improvement on the situation 12 months ago.
If we fancied a Demi Moore-style roll in our riches, then we’d be smothering ourselves in a pile £391.77 deep!
These are heady days, my friends.
The Slow & Steady portfolio is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £750 is invested every quarter into a diversified set of index funds, heavily tilted towards equities. You can read the origin story and catch up on all the previous passive portfolio posts here.
Still, the annualised gain of 2.56% means we’re down after inflation. That means we’re not doing any better than an instant access savings account.
Hey, where did Demi go?
We must learn to enjoy this period of stagnation as an exercise in self-discipline, remembering Warren Buffett’s observation that, “The stock market is designed to transfer money from the active to the patient.”
News slash
One development I was hoping for was a cut in our cost base, after HSBC announced major price slashery for its index funds.
However, as usual, the investment picture is about as clear as a smartphone contract covered in mud. HSBC have not cut the Ongoing Charge Figure (OCF) – the new name for TER – for the retail index funds we’re familiar with in the Slow and Steady portfolio.
Instead, they’ve created a new incarnation of their index funds, called the C class. The OCFs are very low – try 0.18% for the FTSE All Share index C fund.
DIY investors can get these funds from some execution-only brokers that use Cofunds to power their platform.
So far, I’ve found the C class funds via Clubfinance and Commshare. However, other Cofunds platforms like Cavendish Online and Bestinvest aren’t registering the C class online yet.
This may change and you may get a better result if you phone directly. I’m going to do some more digging into this and report back next week.
However the whole point of the C class is that HSBC have stripped out any allowances for platform fees from the OCF. That’s why the funds are so cheap, that’s why they’re referred to as ‘clean’. (Hmm, that’s probably what C class stands for?)
I personally find it difficult to believe that any platform isn’t going to levy some kind of fee on top for hosting these funds. Otherwise they’re not going to make any money.
So until the confusion fog clears, the Slow & Steady portfolio will stick with the regular retail versions of the HSBC index funds. And, sadly, the OCF has actually crept up on all six of our equity funds. The average OCF of our portfolio is now 0.37%, up from 0.35%.
That’s still going to be cheaper for most small investors than the Vanguard LifeStrategy ready-made option, once you take into account platform fees. But the gap is closing.
Incoming
On a cheerier note, we were blessed by the chinkity-chink of tiny dividends rolling into our kitty.
The Slow & Steady Portfolio is invested in accumulation funds that automatically reinvest our dividends, but it still helps to know that we’re benefiting from a little corporate largesse every now and then.
Our funds yielded the following payouts last quarter:
- HSBC American Index: £24.98
- HSBC European Index: £28.40
- HSBC FTSE All Share Index: £23.86
- HSBC Japan Index: £6.28 (Wow. Thanks, Japan)
- HSBC Pacific Index: £9.80
- L&G All Stocks Gilt Index: £19.43
- L&G Global Emerging Markets Index: £15.20
- Total income: £127.95
Comparing that £127.95 payout against our total portfolio gain of £391.77 (which includes our reinvested income) only serves to underline the importance of dividends to a portfolio’s growth story.
New purchases
Every quarter we offer another £750 to the money gods.
UK equity
HSBC FTSE All Share Index – OCF 0.28%
Fund identifier: GB0000438233
New purchase: £125.13
Buy 34.8937 units @ 358.6p
Target allocation: 19%
OCF has gone up from 0.27% to 0.28%.
Developed World ex UK equities
Split between four funds covering North America, Europe, the developed Pacific and Japan.
Target allocation (across the following four funds): 49%
North American equities
HSBC American Index – OCF 0.3%
Fund identifier: GB0000470418
New purchase: £204.67
Buy 96.1788 units @ 212.8p
Target allocation: 26.5%
OCF has gone up from 0.28% to 0.3%.
European equities excluding UK
HSBC European Index – OCF 0.35%
Fund identifier: GB0000469071
New purchase: £41.93
Buy 9.3879 units @ 446.6
Target allocation: 12.5%
OCF has gone up from 0.31% to 0.35%.
Japanese equities
HSBC Japan Index – OCF 0.33%
Fund identifier: GB0000150374
New purchase: £70.92
Buy 124.8750 units @ 56.79p
Target allocation: 5%
OCF has gone up from 0.29% to 0.33%.
Pacific equities excluding Japan
HSBC Pacific Index – OCF 0.46%
Fund identifier: GB0000150713
New purchase: £27.90
Buy 11.881 units @ 234.8p
Target allocation: 5%
OCF has gone up from 0.37% to 0.46%.
Emerging market equities
Legal & General Global Emerging Markets Index Fund – OCF 1.06%
Fund identifier: GB00B4MBFN60
New purchase: £66.863
Buy 148.0580 units @ 45.16p
Target allocation: 10%
OCF has gone up from 0.99% to 1.06%.
UK Gilts
L&G All Stocks Gilt Index Trust: OCF 0.23%
Fund identifier: GB0002051406
New purchase: £212.6006
Buy 114.24 units @ 186.1p
Target allocation: 22%
Total cost = £750
Trading cost = £0
Platform fees = £0
Average portfolio OCF = 0.37% up from 0.35
A reminder on rebalancing: This portfolio is rebalanced to target asset allocations every quarter, mostly using new contributions. It’s no problem to do this, since the vanilla index funds we’ve gone for do not incur trading costs, so long as you choose the right platform.
Take it steady,
The Accumulator
Thanks, TA. Always interesting to read these updates, as my holdings continue to look increasingly like yours.
One question regarding dividends, in particular for the HSBC funds: how does one discover when and how much these have been paid? I’m particularly confused because I was led to believe that most of the HSBC funds paid dividends annually in mid-May, rather than in this quarter.
Hey Simon, the HSBC funds paid out July 15. I think they went ex-divi in mid May. This post tells you how to find the data: http://monevator.com/accumulation-funds-dividends/
For the HSBC funds, it looks like HSBC have created a new Unbundled share class (the C class you mention). This means that they won’t include any payments to the investment provider or to the platform within the TER. This means that both the provider and the platform will take charges separately from the TER.
For the HSBC FTSE All Share tracker – the existing share class doesn’t pay any commission to providers (which is why HL levy a £2/month charge for it.) The TER of the existing share class is 0.28%, of which the platform will take 0.10%.
So it sounds like the new share class is the same as the old share class, except without the 0.10% platform charge. The platform will make a separate charge (that’s the ‘unbundled’ bit in ‘unbundled pricing’ – the platform make an explicit charge, separate from the TER, rather than ‘bundling’ it within the TER.) Unfortunately, that’ll actually work out to be much more expensive, as Cofunds take a flat 0.29% across all funds (plus a £40 annual charge) when the fund is in the ‘unbundled’ pricing model.
More details on cost breakdown on the ‘Cost’ tab here: https://www.rplan.co.uk/funds/factsheet/GB0000438233/hsbc-ftse-all-share-index (note this is the ‘bundled’ share class – not the new ‘C’/’unbundled’ share class)
HTH
Is it safe to invest in the UK with the European Debt problem as big as it is?
Apologies if you have covered this previously but have you stayed with Interactive Investor or moved your portfolio elsewhere?
@ Rob – the portfolio is theoretical, but here are some alternative platforms for you to consider since iii stuck their prices up: http://monevator.com/no-fee-discount-broker-options/
@ Jamie – Investing is never safe. No reward without risk. That’s why my money is on a strategy that diversifies across asset classes rather than worrying about trying to outguess the market. Interestingly, the FTSE All Share is up 20% in the last year, regardless of UK recession and European debt problem. It would have been a shame to miss out on that.
For these new HSBC C class shares, Clubfinance says “This fund is only available under the new alternative charging structure, contact us for details”. I assume this involves paying a fee to Clubfinance, since they (and Cofunds) will be getting no commission from the fund.
@ivanopinion – yes, that’s correct. The existing HSBC (non-C class) funds have a 0.1% platform commission built in, and 0% investment provider commission. The new C class funds have 0% platform commission and 0% provider commission. They are only available on Cofunds under the new ‘unbundled’ pricing model/charging structure; which also involves paying Cofunds a 0.29% per annum plus a £40 fixed fee. I’m not sure how much Clubfinance would charge on top of that.
The non-C class funds are therefore usually cheaper to buy (despite the higher headline figure), because Cofunds take a higher charge in their ‘unbundled’ pricing model than in their older ‘bundled’ pricing model (this also applies to other platforms such as Fidelity – all have introduced similar ‘unbundled’ charging models with similar charges.) The non-C class funds also pay no provider commission, which means that many low-cost brokers effectively offer them for free (except HL, who charge £2/month for them).
The difficulty is that the TER for funds includes platform and provider commission, but the new ‘unbundled’ pricing models involve charging these separately from the TER. So the TER on the ‘unbundled’ model funds looks lower, but investors often end up paying more, because ‘unbundled’ platform (and provider) fees are often higher than what they would have received in commission.
The ‘unbundled’ pricing models are a result of RDR, which is the FSA’s attempt at making charges easier for end investors to understand.
Thanks Nick. I suspect we will see the same thing happening with other funds that have no commission, such as Vanguard and Troy Trojan O class. You can currently get these from a number of platforms, including Alliance Trust Savings and (for at least some of the Vanguard range) Interactive Investor, with no incremental charge. Of course, from the end of this year it will, I understand, be impossible to buy fund classes that carry trail commission and in many cases the fund houses are already phasing out platform commission. Presumably Interactive Investor will have to start charging more than just their current £20 per quarter fee for each customer (actually, each family) on new investments, given that they are powered by Cofunds. As far as I know, ATS runs its own platform, so perhaps it will not introduce extra charges, but somehow I doubt it!
Strictly speaking, Trojan O does pay some commission. I know this, because Interactive Investor rebates a tiny amount to me. I assume this is a small amount of platform commission, part of which is passed by Cofunds to Interactive Investor. So, Cofunds is probably getting somewhat less than 0.25% on my current investments in Trojan O. I’ll be upset if I end up having to pay 0.29% explicit fee. I can see that I might end up holding some of my funds direct with the fund house. No point paying an extra 0.29% or more for a service that doesn’t provide me with a lot of value other than simplifying my admin.
@ Ivan and Nick – Clubfinance are charging 0.1% on top of the Cofunds charges. There’s an update on the C Class funds here: http://monevator.com/c-class-hsbc-index-funds/
Vanguard refused to pay any platform commission from the start, so they are a good model for the kind of world we’ll be living in. Having said that, Cavendish Online have already said they don’t think RDR will force them to change their pricing model.
Hargreaves Lansdown, Sippdeal and Best Invest also sell Vanguard.
@the accumulator – great update, and good point on Vanguard – the reason they haven’t been more widely available is that they don’t pay commission, and that platforms didn’t want to charge an explicit fee on top of the TER. As RDR becomes more common, I expect the Vanguard funds to become more readily available, though only in the ‘unbundled’/’explicit’ charging model.
Just found that Vanguard index funds are now available on TD direct ISA accounts.
Thanks for the tip-off Mika. Great spot. It’s the UK domiciled funds but crucially that includes the LifeStrategy fund of funds. Looks like TD haven’t hiked their fees so if you’ve got more than £5100 in your ISA then you can finally get Vanguard for no extra charges beyond the TER/OCF.
That means a LifeStrategy portfolio beats the Slow & Steady in terms of cost and automatically rebalances for you. No contest anymore.
Try to place an order but it failed. Still waiting for reply from TD direct.
According to their information on web site.
Funds are available on ISA accounts and minimum initial buy is £500.
But I wonder if the information is correct.
Hi Mike, thanks for the update. Let us know how it goes. And min buy is £500 not £50?
I called earlier today and was told that only the FTSE All World, Emerging Markets, and S&P trackers were available to invest in via TD. It sounded like others might be added later, but the guy I talked too didn’t seem too sure. I then asked what the charges were for those funds, but was put on hold – I’m afraid I gave up after 10 minutes…
If they are available at no extra cost, that’s a great deal! Worth being aware of the £35/fund transfer out fee though – if they change their pricing structure at some point, it’ll be comparatively expensive to switch to a different provider.
According to the document, min initial buy is 500.
But it didn’t mention about min top up.
Just confirmed that customers can buy Vanguard funds on TD direct ISA account.
Customers will get Vanguard’s initial charge discount (5%-5%=0), so no initial charge.
But for FTSE UK, TER is 0.15%, there is a dilution levy on subscription (0.5%)
Life strategy 80%, TER 0.32%, dilution levy on subscription (0.24%)