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What caught my eye this week.

Unfortunately one of my investing heroes, Charlie Munger, died this week. And he had the temerity to do it on a Tuesday.

Which means that by now those of you who’ve heard of him – let alone admired the man – will have been mainlining Munger quotes for five days straight.

Meanwhile the rest of you either never of heard of Warren Buffett’s best friend until this week, or you’ve probably heard enough of him by now.

Ho hum – I have to write something. Feel free to skip to the links!

Grumpy old man

You see, Charlie Munger has felt weirdly important in my life for the past couple of decades.

Perhaps it’s because I read The Snowball and Damn Right when my father was in the intensive care ward that he would only leave as an utterly changed man.

Munger somehow spoke to me when he said:

You should never, when facing some unbelievable tragedy, let one tragedy increase into two or three through your failure of will.”

The financial crisis was raging outside. Lehman Brothers had just collapsed. I learned about that in a copy of the FT purchased in the hospital’s WH Smiths.

I was angry with the world that my father was going out like this, after living such a dutiful life.

And so I did what anybody would do. I got out my smartphone and tried to figure out how quickly I would need to compound my wealth to catch-up with where Charlie and Warren were at my age.

It already looked pretty futile. Almost without adjusting for inflation…

Charlie joked – when recently divorced and impecunious – that he drove a beaten-up car to “keep away the gold diggers.”

And after complications with a cataract surgery had left him in agony in one of his eyes, he had the eye ground out.

My dad would never see me ‘make it’, I realised, as if he cared about that.

Compounding takes too long.

You should never, when facing some unbelievable tragedy…”

Tell us another one

You might be expecting me to here say something about how Munger’s investing wisdom – which I’ve gulped down as freely as the next stock-picking junkie – gave me the conviction to buy shares in X, or to understand that I should do more of Y and much less Z when I allocate my money.

Yada, yada, yada.

Dozens of articles claimed as much this week. Some were surely sincere, but I have my doubts about most.

I know personally a couple of the hundreds of writer-investors who wrote their own Munger memorials.

And honestly, if Munger influenced them then it must have been with his fashion sense because I’ve never detected it in their investing.

But I don’t say that to be bitchy. I do believe many of them really were touched by Munger’s passing.

You see, for nerds like them, me – us – Charlie Munger was more like a rockstar than a textbook.

Oh yes, everyone says they learned from him. But what they really mean is they liked his funny zingers.

They also liked that he’d seemingly gotten so rich on his own terms, while saying whatever he liked.

And that he made it look easy – because most of us turned up in the final act.

They didn’t hear his famous quips by sitting through five-hour Berkshire Hathaway meetings.

And certainly not his mock curmudgeonly pronouncements made at the AGMs for his own pet enterprise, The Daily Journal.

They mostly heard of the witty things said by Munger many years later, in articles that collated the witty things said by Charlie Munger.

Munger’s zingers were indeed quality. There’s a collection or two in the links below.

I have nothing further to add

No, for many active investing enthusiasts, the death of Munger is more akin to the death of David Bowie.

You remember the outpouring when Bowie died?

Cynthia, now 71-years old, says the androgynous Bowie gave her the freedom to live life on her own terms. The former estate agent and mother-of-three never forgot the moment when the drug-taking musical genius looked out at 25,000 awestruck fans and possibly caught her eye in 1972. It’s a story Cynthia often tells the other ladies at the Rotary Club in Tunbridge Wells. But Cynthia hopes to have a new tale to tell soon, as she plans to make a pilgrimage to London next month, to drive past the Bowie mural in Brixton on her way to see her son-in-law, Richard, who is living in Wimbledon.

Yes I’m being facetious. Good for Cynthia. And good for me and all Munger’s fans.

Some people make the world bigger for the rest of us simply by being in it.

David Bowie. Charlie Munger.

Have a great weekend.

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What cheap investment trust should I buy next? [Members]

What cheap investment trust should I buy next? [Members] post image

Like hormonally-intoxicated 18-year olds during Fresher’s Week, Boris Johnson on Would I Lie To You?, or me at a KFC, investors in the UK are in a target-rich environment.

All but a minority of London-listed companies look – to my active eye – fair value at most.

This article can be read by selected Monevator members. Please see our membership plans and consider joining! Already a member? Sign in here.

Best S&P 500 ETFs and index funds – how to choose

Do you want a piece of one of the most successful stock markets in the world? Well, do you? I suspect so, which is why we’ve put together this guide to the Best S&P 500 ETFs and the best S&P 500 index funds.

In this post, we’ll explain how to pick the best S&P 500 trackers and narrow down the array of choices to a worthy few. 

Best S&P 500 ETFs – compared 

Tracker Cost = OCF (%) 10y returns (%) Replication Domicile
Lyxor S&P 500 ETF – Dist (USD) 0.07 14.6 Synthetic Luxembourg
Xtrackers S&P 500 Swap ETF 1C 0.15 14.5 Synthetic Luxembourg
Invesco S&P 500 ETF Acc 0.05 14.5 Synthetic Ireland
iShares Core S&P 500 ETF (Acc) 0.07 14.6 Physical Ireland
Vanguard S&P 500 ETF 0.07 14.7 Physical Ireland

Source: Trustnet and fund provider’s data. Returns are nominal annualised returns. 

S&P 500 ETFs are a type of index fund that track the performance of the 500 largest stocks in the US.1

Index funds are designed to match – as closely as possible – the return of a particular section of an investible market. The part you gain exposure to is defined by the ETF’s benchmark index. That’s the S&P 500 in the case of the trackers we’re focussing on today. 

By replicating the performance of their index, S&P 500 ETFs (and S&P 500 index funds) enable you to efficiently diversify across Corporate America’s most profitable companies at minimal effort and for an incredibly low cost. 

Our post on ETFs vs index funds explains the key differences between the two types of investment tracker.

There isn’t normally much to choose between the two tracker flavours. But when it comes to the US stock market, the best S&P 500 ETFs are superior to the best S&P 500 index funds. 

Best S&P 500 ETFs – what to look for

The table above lists the key criteria that separate the best S&P 500 ETFs from the also-rans.

As you can see from the 10-year return column, the practical difference between the top dogs is extraordinarily slight.

That said, it’s not quite like picking baked bean tins off the supermarket shelf. Some S&P 500 trackers are more equal than others…


The ETF’s index replication method matters when it comes to US stocks. 

That’s because the best S&P 500 synthetic ETFs have the edge since they don’t have to pay US withholding tax on dividends. 

Contrast that with physical ETFs domiciled in Luxembourg. These must pay 30% withholding tax on US dividends. Irish-domiciled ETFs pay 15%.

(The withholding tax advantage helps explain why the physical ETFs in the table are both based in Ireland.) 

Though the two physical ETFs listed above (from iShares and Vanguard) are marginally ahead over 10-years, it’s a different story across the longest timeframe we can get data for:

Source: justETF. Returns are nominal cumulative return. 

Over 13 years, the three synthetic ETFs get their noses in front of the physical iShares S&P 500 ETF (the red bar). And the Vanguard ETF drops out of the comparison. It wasn’t launched until 2012. 

The synthetic ETF’s tax advantage springs from the interaction of US legislation and the design architecture of this type of fund. It’s not a dodgy loophole.

Indeed, fund houses that traditionally specialise in physical replication have been forced to launch their own synthetics in order to compete.

What is the difference between a synthetic and physical ETF?

As you’d expect, a physical ETF actually holds the underlying stocks that comprise its index. No surprise, since that’s the most direct way to mimic the performance of a benchmark. 

In contrast, a synthetic ETF delivers its index return by using a financial derivative called a total return swap.

Essentially, a swap is a contract agreed between the ETF provider and a counterparty – usually a large global financial institution.

The counterparty pays the ETF provider the index return to be passed on to the fund’s investors. In exchange, the counterparty receive collateral and cash which they hope to make a tidy profit on.  

US legislation exempts swaps from incurring withholding tax when they’re applied to certain stock market indices, including the S&P 500 and the MSCI World


Index trackers beat active funds on average thanks to their lower costs.

Higher fees subtract from returns. They negatively compound to drag down your profits over time. 

It follows, therefore, that lower-cost ETFs and index funds should dominate their pricier brethren. 

The most visible measure of cost is a fund’s Ongoing Charges Figure (OCF). ETF providers compete on this measure in a ceaseless price war that does have a winner – the consumer. Yay!

But the OCF is not the last word in performance. Take a look at this chart:

The graph shows the cumulative return of the cheapest US large cap ETFs (including non-S&P 500 indices), with their current OCFs overlaid in green. 

We’ve also added Xtrackers’ S&P 500 Swap ETF 1C. This is one of the most expensive S&P 500 ETFs around – and yet it is also a top performer. 

There’s no clear correlation on OCFs here. Rather, the point is that the cost gaps between the best S&P 500 ETFs (and rival indices) are so slim that they’re not a deciding factor when it comes to performance. 

By all means choose a keenly-priced tracker. But don’t stress about every last pip of difference. 

Long-term returns

Naturally we’re drawn like groupies to the best performers on the stage. 

But two points of caution.

Firstly, the current Number One may not lead the pack in the future. There’s just no guarantee that any small advantage eked out today will persist. 

Additionally, as the next chart shows the difference between leading S&P 500 ETFs is marginal anyway: 

All of these ETFs have delivered exceptional performance over the last 11 years, because they mirror the S&P 500. And these US large caps have produced stellar returns over the period. 

Every single one of those trackers did its job. True, we can see that some did it slightly better than others – in hindsight and with our magnifying glasses out – but you don’t need to get Sherlock Holmes on the case when you’re choosing between me-too products.  

Note that every table and chart in this post uses a slightly different timeframe. And the single best S&P 500 ETF – as measured by return – changes with almost every time period. 

There is a core set of five ETFs that have maintained a slight edge (as reflected in our Best S&P 500 ETFs table). But performance is only one factor worth thinking about.

Also, forget about any conclusions drawn from less than three years of data. The longer the timeframe, the better the perspective. Temporary wins are planed away by the law of averages. 

Our approach is to find the best long-term data we can, then place our pick in the centre of the Venn diagram of relevant factors.

A balance of low cost, long-term performance, and an ongoing tax advantage will get you to the right place. 

Best S&P 500 and US large cap index funds – compared 

Tracker Cost = OCF (%) Index 10y returns (%) Domicile
HSBC American Index Fund C 0.06 S&P 500 14.3 UK
Fidelity Index US Fund P 0.06 S&P 500 14.3 UK
iShares US Equity Index Fund (UK) 0.05 FTSE USA  14.2 UK
L&G US Index Trust I 0.1 FTSE USA 14.1 UK
Vanguard US Equity Index Fund 0.1 S&P Total Market  13.6 UK

Source: Trustnet and fund providers’ data. Returns are nominal annualised returns. 

There are many fewer S&P 500 index funds available than ETFs. Hence we’ve drafted in other flavours of US large cap tracker fund to bolster your options.

You can see that the best S&P 500 index funds trail the best S&P 500 ETFs over the long-term.

But the lag isn’t egregious and is worth living with if you’ve chosen a percentage fee broker that offers zero-cost trading on index funds, since you’ll be saving extra dosh that way on investing fees.

Once your portfolio is worth over £12,000 in a stocks and shares ISA – or roughly £60,000 in a SIPP – then it’s time to think about the long-term cost advantages of switching to ETFs.

Compensating factors

Another good reason to pick an index fund is that such funds are eligible for the £85,000 FSCS investment protection scheme.

ETFs do not qualify for compensation under this scheme.

The only vehicle that is covered by the FSCS is a UK domiciled Unit Trust or OEIC (Open-Ended Investment Company).

All of the index funds listed in our table are one of those two types.

And just in case you’re wondering, index funds all physically replicate their indices. There’s no synthetic, withholding-tax-swerving option here.

Best S&P 500 ETFs vs MSCI USA ETFs

Finally, it’s worth knowing that trackers based on the S&P 500 have consistently beaten other indices that represent US large caps over the periods we’ve been looking at:

ETFs based on the MSCI USA index are the most commonly offered alternative to S&P 500 tracker funds. Our chart shows that they have consistently come off worse against S&P 500 stablemates. 

The MSCI USA is slightly more mid-cap orientated than the S&P 500. But the US tech giants have swept all before them for well over a decade, benefitting the famed US mega-cap index. 

We’d say it is the outsized returns from the largest technology companies that have driven the returns of the S&P 500 higher. And such companies make up a greater proportion of the less-diversified S&P 500.
That’s the most likely reason that S&P 500 trackers have also beaten FTSE USA and S&P Total Market index funds. 

But academic research has previously found that smaller companies in aggregate beat large companies over the long-term.

There’s reason to believe then that recent returns will prove to be an anomaly.

S&P 500 forever?

On a related note, Corporate America has been the winning bet globally for more than a decade, too.

In fact if you’re looking for the best S&P 500 ETF or index fund then you’re probably motivated by the total ass-smashing our Trans-Atlantic cousins have handed the rest of the world in recent years:

A chart showing the S&P thrashing other global markets over the past 12 years

However Team USA does not always win, as shown by a longer-term analysis of the S&P 500 vs the MSCI World.

In fact the dominance of the US is likely to contain the seeds of its future reversal.

If America looks like the only market worth investing in, then returns must decline eventually as prices are bid up.

The higher the price, the less likely it is that you’ll make outsized returns – because, ultimately, there’s no reward without risk.

We can’t know when any trend will reverse. But the reason we diversify is because it usually does.

US stocks seem overvalued by the best historical measures we have – though such metrics are not bulletproof, and they don’t explain why the S&P 500 has been apparently defying gravity for years now.

The Monevator view is that it’s best to spread your bets around the world. Easier said than done though when even the best global tracker funds are now 60% concentrated in the US, thanks to the latter’s outperformance.

All the more reason to keep a good chunk of change in the best bond funds and ETFs. And perhaps to read our thoughts on the best commodities ETFs, too.

Take it steady,

The Accumulator

  1. Size is determined by market cap – the total market value of a firm’s publicly traded shares. Standard and Poor’s uses a few other criteria too, which means the S&P 500 may not strictly represent the 500 biggest publicly-traded US companies. In fact, you can’t even rely on the 500 bit because the index contains 503 entries at the time of writing! []

Weekend reading: small mercies in the Autumn Statement

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What caught my eye this week.

I have always loved the end of things. A closing down sale. A silent office over Christmas when everyone else is away. The last days of school. The siesta of working through your notice period, when however conscientiously you try to keep at it, the pressure has all gone.

Perhaps Rishi Sunak and Jeremy Hunt feel the same way. They certainly seemed to enjoy themselves with Wednesday’s Autumn Statement. The Prime Minister chortling, and Hunt showing unexpected comic timing as he shared his purported 110 supply-side reforms to unlock economic growth.

This is the Brain’s Trust of the Tory party by modern standards. Sunak and Hunt both know the odds of them being in their jobs after the next election are remote.

Hence I was pleased to see what was mostly a technocratic budget.

Without much room to play with and very little chance of enjoying the spoils, Hunt delivered a suite of pinches, tickles, and tweaks that he hopes will add up to an invigorating pick-me-up for Britain PLC.

I wouldn’t say it amounted to a grand Growth Plan. But it does at least look like planning for growth.

A welcome change after nearly a decade of throwing grit into the wheels at every turn.

When 2p goes quite a long way

Under the last two incumbents of Number Ten, this Autumn Statement would surely have been heavy with last-days-in-the-bunker vibes.

Crazy populist policies that heaped more of Britain’s long-term potential on the bonfire, Denethor-style or – presuming she had time to get them typed up – short mad missives addressed to generals and armies long since taken off the table.

There’s still the Spring Budget for that I suppose. Maybe we’ll then see the unnecessary – and at the least ill-timed – scrapping of inheritance tax, or the pantomime horse of a British ISA that doesn’t know its arse from its elbow. Or big income tax cuts that would certainly be welcome but can hardly be afforded.

But Hunt’s more modest moves were impressively sane.

Sure, cutting employee National Insurance by 2% is at bit like giving someone a stool to stand on while the floodwaters of fiscal drag are rising and the tax take inexorably drowns the land.

However it’s better than nothing, rewards work, and helps those towards the average end of the spectrum more than the rich, which is appropriate in a cost-of-living crisis and a world where disparities of outcomes are widening. Ditto the simplification of NI for the self-employed.

Unlike a general income tax cut, trimming NI also doesn’t give anything extra to pensioners, which is a good thing. I’ve nothing against old people – I hope to be one someday – but pensioners have had it relatively better for years now. And the too-costly triple-lock remains in place.

Kicking off a consultation to look into Aussie-style pension pots that move with you when you change jobs was welcome, as were the steps towards ISA simplification rather than proliferation.

And common sense seems to have prevailed when it comes to allowing fractional shares in an ISA.

We’ll have to wait for the small print on all of these – and I’d say there’s zero chance of ‘pension pots for life’ before the next election – but it’s sensible stuff.

Paying the price

The bigger picture hardly looks pretty, of course.

After the rush of reporting on the Autumn Statement goodies was over, experts lined up to explain British workers are still very much under the cosh of fiscal drag thanks to frozen tax thresholds.

In fact this Tory government will exit leaving Britain at its most heavily-taxed since the days of Churchill.

Not entirely its fault of course, with a global pandemic in the mix. We can argue about specific Covid policy responses – and I’d cut all governments a lot of slack, fiscally-speaking, given all the uncertainty – but evasive action was costly everywhere.

On the hand, the economically-witless Brexit was mostly the Tories’ fault. Who knows exactly how much it’s hammering us, but the independent Bloomberg’s third annual estimate puts it at £100bn a year.

Slap a 40% tax take on that and that’s £40bn more a year that Hunt could have had to play with.

For a sense of what that’s worth, the OBR estimates this week’s NI cut will cost £10bn a year. So we could have had four of those, say. Or an inflation-adjusted personal allowance. Or more spending on services that instead are being whittled away.

Not so much 40 new hospitals from Brexit as 40 weeks to wait to get into one. Or 40 minutes late on the train to get there.

The economic drag from our innumerate Brexit has been going on for years now. Soon enough we’ll be half a trillion quid in the hole. This was always going to be a costly whimper, not a big bang. And this is not even to count the waste of time of five years arguing about how best to shoot ourselves in the foot, versus a counter-factual where we had decent leaders who focused on things that actually mattered.

Never forget when Britain properly gets growing again that we generally tend to grow. Brexit won’t have given us that growth. It has just slowed us down in the meantime.

Oh, and I’m not much impressed by retorts that we’re growing slightly faster than Germany or doing a little better than Italy or whatnot.

For one thing, I expect that the same statistical revisions – which we’ve applied first – will boost rear-view Eurozone growth in time, too.

More pertinently, it just means we’d be growing even faster than those countries if we hadn’t the burden of Brexit.

We did fine for decades in the EU – and we were growing faster than them then, too.

Now though, we’re trundling along with a slightly flat tire – and that’s with immigration at a record high.

Immigration boosts economic growth. So we’d be growing even slower if Brexiteers had actually been able to cut numbers to the level most of them voted for.

Incompetence saved us on that score.

Poor show

The pandemic, Brexit, inflation, and Britain’s endemic productivity problem – it has all helped to squash real income growth.

According to the Resolution Foundation, by the end of this Parliament (which started with a bluster in 2019) average household income will have fallen by 3.1%. That’s £1,900 less in spending money.

It’s unprecedented in modern times:

Source: Financial Times

Still, you might imagine that with the government taking in the greatest share of economic output since World War 2 the squeeze on public services might be over, at least?

Alas not. The Institute of Fiscal Studies estimates that Government departments will need to find another £20bn of spending cuts next year.

I suppose they might yet try a pre-election borrowing binge to fund their way out of that hole. But given how the soaring cost of paying our current debt is another reason why the public finances are so strained, this would hardly be something to cheer.

The morning after the night before

I said on Twitter this sensible Autumn Statement suggested the Tory party had turned a corner – at least for now.

I hope so. Britain desperately needs better leadership. We can debate the right policy levers to pull, but we can ill-afford any more grand delusions.

The numbers make that plain.

Have a great weekend!

Autumn Statement roundups

What the Autumn Statement means for your money – Which

Another spin on the same – Be Clever With Your Cash

FT has a solid take on The Autumn Statement [Search result]FT

Here’s a perspective from the lefties… – Guardian and its calculator

…and the same with a calculator more from the right – This Is Money

And commentary

What is national insurance, and who will benefit from its cut? – Guardian

Britain’s tax burden to be highest since WW2 despite NI trim – This Is Money

Will fiscal drag wipe out your national insurance gains? – This Is Money

How to fix Britain’s flashy economic announcements [Search result]FT

Hunt delivers a budget designed to destroy a future chancellor – Guardian

It alleviates the worst pain, but it won’t fix Britain’s underlying problems – Prospect

The collated #autumnstatement tweets of Martin Lewis – Independent

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