Low-cost index funds UK

There is a sort of value tracker. It’s called the Munro Fund.

It tracks cashflow.
.-= Neil Wilson on: Why we can afford the deficit =-.

Your point about being wary about withholding tax is correct however many of the Lyxor ETFs are Total Return, including LWOR, and don’t pay a dividend. They are normally named (TR) when this is the case.

Doesn’t this mean this disadvantage is moot, for these ETFs?

Useful, thanks. You say L&G All Stocks Index Linked Gilts isn’t ISA compatible, but Fidelity’s fund platform says otherwise (and I have it in my ISA there).

Perhaps you or someone else could clear up a wee puzzle for me – when the TER is calculated, does it include the offsetting effect of any dividend on the fund? i.e., is a fund with a TER of 1.5 and a distribution yield of 0.5 better than a fund with a TER of 1.1 and no dividend?

Thanks for the funds list.

I’ve been maintaining a page of similar information for a while at http://www.bogleheads.org/wiki/UK_Investing. The HSBC Gilts Index fund seems to be new since I wrote this page — looks like I need to update it at some point, then…

Great article – I have been investing in Vanguard Index funds since their arrival last year. Having read Jack Bogles books and a number of other authors that include – Tim Hale / Mike Lewis and a few more. The more you read the more you see that the uninformed investor has been consistently ripped off in one form or another, especially here in the UK. Whilst costs are important my attraction to Vanguard is also based on what I believe to be the character/culture of the company and the fact that Jack Bogle seems to be one of few who has set about to inform and educate the investor and to set up organization that is owned by its investors (I know of no other).

I hold the L&G All Stocks Gilt (acc) fund in my ISA under MEX code LGGTA, I can say that much 😉

trustnet says this is another “institutional” unit class so mileage may vary across brokers.

http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=LGGT&univ=U&pagetype=overview

Although I do have a bias towards Vanguard Index Funds, my only slight concern would be over exposure to them as I have 7 UK index products within a SIPP and have only recently become aware that Vanguard along with other companies experienced multimillion losses during the Sub prime mortage fiasco. What if they had gone belly up !
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atys50sprMvE&refer=govt_bonds

Is this a lesion to diversify, irrespective on the likely higher TER other UK Index funds charge for comparable products ?

That’s not enough about asteroids! This asteroid impact calculator demonstrates the limits of diversification:
http://www.purdue.edu/impactearth

Can anyone talk me through the relative merits of investing in gilts via a fund or buying them direct through a broker?

fund would seem easier but then I haven’t tried buying them direct as it were

Hi does anyone know what platford offers CS ETF (IE) on MSCI UK Small Cap (CUKS) TER 0.58% – I believe iii offer this but have not seen any others – Thanks

Hi Blondie,

You would set up a fund ISA with an online broker like Interactive Investor (iii) or TD Waterhouse or iWeb. Then you can select the funds you want to put inside the wrapper (buying from the broker).

This article may give you a few pointers:
http://monevator.com/2011/01/06/passive-investing-model-portfolio/

Here’s a few links to help with the cost side of things:

TER
http://monevator.com/2010/11/09/what-is-ter/

Tracking error
http://monevator.com/2011/01/18/tracking-error-–-a-hidden-cost/

Tracking difference
http://monevator.com/2011/01/25/choosing-a-tracker-using-tracking-difference/

If I was interested in investing money in an index tracker how would I go about doing that?

Googling the name of any of these trackers inevitably leads to pages of information about the performance and content of the indices with no sign of an option to invest. Am I missing something really obvious here?

Cheers,

JC

According to the PDF dated 30 April ’11 available from https://www.vanguard.co.uk/uk/portal/Funds/funds-and-documents.jsp#, the preset dilution levy on the Vanguard U.K. Inflation-Linked Gilt Index Fund (VVUILG) seems to have been reduced to 0.2% from 0.4% at launch in February.

Because of the dealing charges, the ETFs arent really good for monthly payments, so you cant really ‘pound average’. I think I read in another of your articles that Index Funds don’t have dealing charges (or at least are very minor), so I only have the Vanguard, HSBC and L&G funds to play with?
When you invest in an ETF, do you invest in one lump sum?

I’m a beginner to investing, and have been read your articles with great interest, thanks for the hard work! I’m just a little confused at the moment:

I’ve been using the Motley Fool share dealing service recently to purchase the ETFs mentioned ( XWXU and a Ftse 100 Tracker, CUKX), as well as IGLT (a gilts tracker?). I’ve also recently opened a Fidelity account so that I can trade the HSBC tracker for free, and drip that in every month. Where my confusion lies is how some pay dividends and some don’t! I’ve been waiting and waiting for any payout from XWXU and CUKX, and after a bit of research (from what I can gather but I could be totally wrong) they don’t payout! So:

Does this make them a bad choice, index tracker wise, as it would be far more beneficial to stick with a tracker that tracks AND pays out? So I’m thinking selling up CUKX and rebuying them as HSBC Ftse 100 funds? Or would the dividends in the CUKX ftse tracker not be ‘declared’ as such but bump up the stock price?

And would I be right in thinking ETFs can still pay dividends (as I have received a payout from IGLT 🙂 !!)?

Am loving all the useful articles and comments, however is it just me or does TD Waterhouse not offer Vanguard trackers? I have an account with them already and would prefer to keep everything in the same place, however when looking at the list of available UK funds, it seems they have every fund manager under the sun….. except Vanguard – unless I am missing something (which is highly probable!)

The Accumulator,
Is there any downside to buying US ETFs shares as opposed to UK?
Vanguard US trackers are extremely cheap, and after filling W-8BEN form, witholding tax will be only 15% (as opposed to 30%) and it you can offset it against UK dividend tax too.

Basically – why buy UK trackers if you can buy cheaper US versions?

Hi Accumulator,

I have just recently started passive investing and found all your articles on indexing extremely helpful!

I’ve been looking to diversify my portfolio with a commodity ETF. I understand from your later articles that the cheapest ETFs listed here (Lyxor and ETFS) are synthetic and thus carry significant counter-party risk. This is especially true with Lyxor, who’s counterparty is their parent company, SocGen.

I noticed that iShares have recently set up a new commodity ETF here in the UK (iShares S&P GSCI Dynamic Roll Commodity Swap). Though it is also a synthetic ETF, it has multiple counter-parties and seems to be less risky, and I understand iShares ETFs tend to be safer in general. However, the tracking performance of the ETF hasn’t been proven as it has only been around a few months.

What are your thoughts on the higher counterparty risk of the Lyxor ETF vs the unproven iShares ETF? And are these risks worth taking for a little extra diversification in my portfolio?

Thanks!

Accumulator,
Thanks for the reply. I guess in my case I’m more worried about the blow-up risk of these synthetic ETF, so I’m more willing to take a chance on the unproven iShares ETF vs the Lyxor.

I also attempted to look up the Credit Default Swap prices, but could only find several of them on this site (SocGen was indeed higher than the other financial firms I could find) (http://www.distressedvolatility.com/2010/07/nice-to-see-cds-quotes-credit-default.html). Any idea where I can find more CDS data?

Hi Nathan,

Looking at AT’s latest fund list they quote an AMC of 0.65 and a discount of 0.5. What they don’t mention is the TER of the L&G fund is currently logged as 1.06 on the L&G site. That would leave you with a TER of 0.56 for the L&G fund and 0.55 for the Vanguard fund. Though the Vanguard Emerging Markets fund has purchase and redemption fees of 0.25.

The two funds are broadly comparable but do look into the nitty gritty to make sure there aren’t any surprises.

It’s still a great spot as few brokers offer discounts on index funds.

Heh, I hear you, it’s a nightmare, isn’t it? Take a look at the upfront Vanguard fee though. If it’s a dilution levy it will work in your favour (if you’re a buy n holder) as that makes individual investors responsible for trading costs. It’s a good idea to compare the tracking error of the two funds to see if Vanguard’s returns are closer to the benchmark as a result of their approach.

Aren’t the trading costs a bit of a red herring here, as I thought that these were tied up in the quoted TERs?

Tracking errors and underlying assets I realise I still need to check.

@ Nathan – trading costs are specifically not wrapped into the TER and are a major source of tracking error. See: http://monevator.com/what-is-ter/

@ Steve – Exciting news about the Vanguard ETFs.

Looks like HSBC is about to slash its fees quite a bit lower. In many categories, they will be cheapest:

http://www.assetmanagement.hsbc.com/uk/advisers/funds-in-focus/indextrack_fund.html

I understand you can get these if you go direct to HSBC as a retail investor. See: http://forums.moneysavingexpert.com/showpost.php?p=56219371&postcount=496

Quote: “Steve W May 16, 2012 at 2:12 pm: I believe Vanguard are about to offer ETF at bargain prices so you might want to wait a few weeks ( as suggested over on the fool site).”
Any update on the Vanguard index funds and ETFs? I`d like to include them in my shortlist. Only got some HSBC index funds so far.
Cheers
Trevor

You can get the Vanguard ETFs from any broker that deals in LSE ETFs – which is most of ’em.

Stephen,

Sign up to Investegate (its free!) and they will email you dividend details, such as:

http://www.investegate.co.uk/vanguard-funds-plc-(irsh)/rns/dividend-payment/201212181504248340T/

Normally I’d get that from Trustnet but having just checked, they don’t have it for the Vanguard ETFs. Have you tried emailing Vanguard directly. I’ve done that before and got a helpful response.

Hmm, that is poor. Sorry I missed your previous comment where you said you’ve mailed them previously. You’re absolutely right, Stephen, they should be providing that info as a matter of course. I would have one last shot at mailing them specifically for the info you require rather than for a link to it. i.e. “I would like ex-divi dates and distribution dates for ETF X, please.” I previously asked them for some past years dividend figures for OEICs (Trustnet missed the first few payments) and they ponied up. You may get someone more helpful with another attempt.

TD Direct you mean? ETFs are just stock market securities, you buy them via ‘UK Equities’.

1) Select ‘Place an order’ then select ‘UK Equities’.

2) In the ‘Stock Symbol’ box type in a portion of the ETF’s name. For instance ‘ishares’.

3) Click ‘Lookup’ and all the iShares ETFs are shown in a separate window.

4) Click one of the hyperlinked symbols on the left for the ETF you want and the Stock Symbol box is re-populated with the correct symbol for the ETF.

Is EXS1 a UK equity? I can’t see mention of it on the iShares UK site, and any reference I see online suggests it’s on DAX. If that’s the case I think you have to choose ‘Germany’ from the dropdown.

Sure, sure. I ain’t defending their (possible) bugs or deficiencies, just saying how it works for me.

IWDP, one of my holdings, seems to work. Maybe their query is too broad and is erroneously returning EXS1.

Having recently discovered Monevator and read a couple of books with a similar tilt I’m in the process of re-thinking my approach to my investment, primarily significantly increasing the amount of trackers I’m holding. I’ve already done this on my Company pension, switching exclusively to the available passive funds but now want to work on my ISA which is held with III.

Can anyone advise on how I can go about understanding whether I should be using the ETF or Fund version of any particular tracker? I’ve read a few articles on the generic difference between them but the cost differences in the context of III’s charges is frying my brain.

With III I have the £20 a quarter commission credit to play with and will be investing monthly, ideally using the regular investment trade of £1.50 (IIRC). I’ll rebalance with new money only if possible.

Any help from peoples experience is welcome.

James

Hi James – there is a good post somewhere on monevator about this. For small amounts it definitely makes sense to use funds. It doesn’t really matter so much for very large amounts.

One thing to consider is that a lot of ETFs aren’t total return (ie they pay out the dividend). If you aren’t retired it makes sense to use accumulation units which are easier to find with funds.

Remember with the ETF you have to include the cost of trading when you sell and you may want to sell in several tranches (more dealing fees). Te- investment of dividends will be expensive too. Finally there is always a bit of a spread on the ETF buy and sell price v

While writing this I have convinced myself only to use the ETF if there is no available good value Fund In the same investment space…..

Passive Investor – thanks for your reply.

III charges a dealing fee for investing in shares and funds so I don’t think that differentiates them from my perspective.

@ PI – yes, the MSCI definition of small cap has a lot of mid-cap overlap. There’s no good alternative though, other than buying a clutch of regional small cap ETFs (expensive) or checking out US ETFs as you suggest. I haven’t looked into this yet, but will do at some point.

@ James – in the context of iii’s charges, I personally wouldn’t sweat the difference between ETFs and index funds. I’d use whichever vehicle most suited my needs. Here’s an article that might help all the same: http://monevator.com/etfs-vs-index-funds-differences/

@ An Admirer – in a British context the FTSE 250 is unquestionably mid cap. I nearly put in a mid cap category but decided against it when I read that the small cap premium only really manifests itself through genuine small caps.

@ Geo – thanks. I’ve similarly not always been able to get the ETF I want through TD. Yep, iShares do have an Emerging Market Small Cap, I think the OCF is the same as the SPDR one. Just ran out of strength in my typing fingers 😉

Following some sort of “merger-absorption” late last year, the ticker symbol for Lyxor ETF Commodities CRB changed to CRBL. You might want to update your list to reflect this.

Hargreaves Lansdown have a FTSE all share tracker with a TER of 0.1% (SWIP Foundation Growth B). This is the cheapest route to the all share that I have found, but would be happy to hear if anyone knows any different. Would prefer an ETF. HL charge £2 per month to hold the SWIP fund, but do not level a buy/sell fee and there is no up-front charge for stamp duty like there is with the Vanguard funds. According to the HL comparison pages, the SWIP fund has beaten the all share TR over the last year by about 20bps on a mid to mid basis and the Vanguard tracker has underperformed by 5bps.

US investors would consider the FTSE 250 constituents to be a small cap by the way and our small caps to be micro caps. If you believe the stuff about small caps outperforming big caps in the long haul because they have in the past, or you buy the line that small caps are higher risk so should have a higher equity premium then the FTSE 250 is a suitable way to go.

HSBC clean funds are all available at Alliance Trust Savings. To cover the costs they charge to buy/sell units and levy an annual account fee, but do charge a per product fee the way HL do.

@ Bigsy – much obliged! Updated.

@ Rob – I was specifically referring to platform fees as an unbundled charge. Platform fees are of course bound up in a retail fund’s OCF which is what makes them more expensive, but that’s not the point of this article. I’ve linked to articles that give a fuller picture on that one, but every article would become an unreadable bloat-athon if I have to explain the whole nine yards every time.

I have differentiated funds that charge stamp duty up front by noting initial charges. Using a fund cost comparison calculator makes comparing the different charging models easier to compare: http://www.candidmoney.com/calculators/investment-fund-cost-comparison-calculator

@ NaeClue – The SWIP fund is the cheapest All Share fund out there (I’ve mentioned it in the footnotes), I just don’t like putting it at the top of the list because the HL exclusivity rankles with me.

The small cap premium seems to persist because of the liquidity problems associated with small caps and higher perceived risk. I haven’t seen any evidence that UK mid caps benefit from this premium because many of them would be classified as small caps in the US. I spent some time researching UK investment trusts to compensate for the lack of suitable UK small cap trackers and they generally didn’t benchmark themselves against the FTSE 250. The Hoare Govett Smaller Companies Index was a popular benchmark in this instance.

Having been an active (in all senses) fund investor for 26 years now I would just like to offer a few dissenting views on passive investing.

I have studied fund performance tables constantly ; kept up to date with the managerial ‘roundabout’ ; fund compostion/objectives/freedom and restrictions etc.; know how/where to obtain best ‘bang for the buck’ vis a vis TERs/Discount brokers/commission rebates etc. ; risk v reward ; asset allocation (which is right for me) etc etc etc, to the point that I think I know the best managers running the best funds available to me here in the UK (including offshore).

Nowadays I pay more attention to following managers than funds (and many funds are discounted because of size, although thats another story) and trying to strike the ‘right asset allocation for my circumstances vis a vis the current economic point in the ‘cycle’.

Anyway, as an experiment, I opened up two S&S ISAs – an active one in my wife’s name and a passive one in mine. Both were in a number of funds using the same criteria as above.

My wife’s was, after not too long, way ahead in terms of performance and, having satisfied myself on the lessons to be drawn from the experiment and, and not wishing to ‘lose’ any more money, I began switching my own from passive to active. I have now almost caught up to my wife’s performance.

Passive investing may be fine for people with limited time/experience/inclination but personally I am not prepared to forego the very real possibility of , say, a 10% p.a. increase in return (sometimes very much more) for the sake of saving perhaps 1% in costs.

@Michal

If you sell one fund and buy another fund, this definitely triggers a capital gain for the old fund and establishes a new acquisition cost for the new fund. It does not matter how similar the funds might happen to be.

The position with regard to switching between accumulation and income units in the same fund is a little uncertain, as far as I know. The normal way to “switch” would be to ask the fund manager to convert from one class of units to the other. This definitely does not trigger a capital gain, because it is considered to be a share reorganisation, which means that the switch is ignored. However, it is difficult to see how it could be a share reorganisation if you sell, say, accumulation units and purchase income units of the same fund. In my view, that would trigger a gain, although I don’t think it is clear.

@Investor

I agree with you that if you sell one fund and buy another similar fund the question is whether the 30 day rule applies. That’s exactly what I was talking about. That’s why I said this would establish a new acquisition cost for the new fund. The way the 30 day rule works, the new purchase is deemed to have the same acquisition cost as the former holding of the same share.

The wording of the legislation is very specific; it is not a broadly worded anti-avoidance rule where you need to worry about the spirit or purpose of the rule. It talks about matching a disposal with any acquisitions of “the same share” that take place within the next 30 days. For these purposes, a unit trust is a share, so if you dispose of, say, HSBC FTSE All Share Tracker, this rule can only apply if you buy exactly the same unit trust. If instead you buy an All Share tracker from any other fund manager, this is not the same share, so the 30 day rule does not apply. The same applies if you buy HSBC FTSE 100 tracker.

The situation is different if you ask the fund manager to convert from accumulation to income units or vice versa. In this case, HMRC has made it clear that this is treated as a share reorganisation. This has the same effect as the 30 day rule, but it is a different part of the legislation.

The area of doubt is cases where you sell one class of units and repurchase another class (rather than having the fund manager make a direct conversion). I have been looking into this in the context of switching to clean classes from dirty classes, and the situation is unclear, but there is some evidence to suggest that different classes of the same fund are not the same share for the purpose of the 30 day rule.

Requirement for it to be the same class of share (“security”) is here (subsection 5):
http://lexisweb.co.uk/acts/1998/finance-act-1998-1998-c-36/124-new-identification-rules-for-cgt

See also bottom of this page:
http://www.fool.co.uk/Your-Money/guides/Capital-Gains-Tax-Minimising-CGT.aspx

Other links on funds, see comment 41 onwards:
http://monevator.com/switch-to-cheaper-index-funds/comment-page-1/#comments

Hi Andy, that Fidelity fund is cheap but not as cheap as, for example, the HSBC FTSE All-Share fund, which does the same job and has also proved marginally superior in terms of tracking error.

I haven’t used an ISA cash park in the way you suggest, but I don’t like the sound of being charged yet another fee to move my money. Have you done the calculations to see if you’re better off moving your money from a current account? The Nationwide Flex Direct pays 5% on balances up to £2500 and Santander’s 1-2-3 account pays 3% on balances between £3000 and £20000.

There is no good answer to whether you’re better off piling the money in in one fell swoop. It depends on what happens to the market after you’ve made your move. Academic studies have shown that, as the market tends to go up more often than down, you’re financially better off lump-sum investing, but those studies can’t predict what the psychological effects would be on you if you went all in and then the market tanked. Most people find it easier to drip feed.

I notice HMRC as of April 2013 will require any commissions to be taxed prior to refunding investors. I have quite a large portfolio via Cavendish Online Brokers and
therefore would be interested if there is a better solution in terms of receiving rebates.
i.e could the rebates be diverted to offset SIPP/ISA fees as opposed to the commission being paid and taxed.

Are their other platforms that do this?

Has the above been factored into the “best buy index tracker platform” or have I misunderstood something.

Thanks in advance

Regards

Steve

A recent communication I had from Cavendish (on a totally different subject!) contained the following text:

“FundsNetwork allows Cavendish Online to set a ZERO commission rate for renewal commission on funds under their management. This is called the Adviser Ongoing Fee (AOF) rate.

We will instruct FundsNetwork to pay the AOF commission directly into your account to purchase more units. This rebate will be added to your largest fund holding (by value). You will then start to receive 100% of the renewal commission on all investments on the Cavendish Online FundSupermarket.”

Doesn’t this function as a workaround for the tax on the rebates? The only account I have with Cavendish is an ISA, so it looks as though the rebates (such as they are on trackers!) will be paid within the ISA, and so will not have a tax liability. I’m guessing there’s nothing stopping me selling those additional units if I really wanted the money outside the ISA.

N

Ha, funny you should say that, DonF, as tomorrow’s post is all about Value fund options and includes PowerShares. I suppose my issue has been that, for simplicity sake, I wanted to point to discrete value funds, rather than broad market funds with a value tilt. However, I think you’re right, I need to update the piece and include PowerShares options in all the Value categories. And I guess you’re talking about PowerShares FTSE RAFI All World 3000 in the Int Value category?

I’m interested in the Vanguard funds but Best Invest and Alliance Trust both want fees for holding the funds. Does anyone know of a way of holding these without having to pay monthly/ quarterly fees?

@David

If you or anyone in your family has an account with Interactive Investor, then there would be no additional charge if you opened an account and bought the Vanguard funds or if you added them to your existing account.

Also, have a think about how many transactions per quarter you are likely to want to do. Even if you don’t already have an account with Interactive Investor and nor does anyone in your family, the worst-case scenario is that you have to pay the £20 per quarter fee for the account, but you do receive a £20 per quarter credit against transaction fees, so if you would otherwise have spent £20 per quarter on transaction fees there is effectively no quarterly fee.

thanks all – I intended to just make the investment and watch it meander a long, rather than make regular trades, so it seems somewhat of a con to have to pay someone to look after it for me 🙂

Vanguard have extended their ETF range with 4 new cheapest ETFs covering Asia Pacific (exc Japan), Japan, Europe (inc UK) and All World High dividend yield.

The cheaper Legal and General I class unit trust seems to be available through the likes of Sippdeal and Charles Stanley rather than the F class which we were all expecting to be the relevant unit class.

The Black Rock D class unit trust trackers are now becoming more widely available (e.g. through Sippdeal).

Is it worthwhile purchasing shares in an ETF each month for a passive investment portfolio, where drip feeding monthly is the name of the game given the extra costs involved?

Halifax Sharedealing will let you hold the Vanguard funds and most others with no fee (£25 exit). They charge £2 per investment for booked trades which is a bargain. I use them and would highly recommend, their service has been excellent.

Yes I hold VUKE and VUSA with Halifax. My last purchase was a couple of weeks ago. If you look in their research centre they should be there?

Unsure on ISA or SIPP fees (I live in Channel Islands so not relevant to me)

Ah sorry, I misunderstood.

The Channel Islands have no tax free savings schemes other than paying in to very restrictive pension schemes (similar to a SIPP but with very little market competition, so generally rubbish). We have to pay income tax on all savings income (including DRIPs) and have no ISA equivalent. Not a savings friendly place if you’re a local tax payer sadly.

Capital gains are not taxed but finding good quality investments now which accumulate rather than distribute is hard. Any you know of would be welcomed because accumulating income is tax free but as I said DRIPs aren’t.

Re:
International Ex UK Index Funds
L&G International Index Trust F (GB00B2Q6HW61) OCF 0.36%
Unless I’m mistaken,the minimum initial investment is £1,000,000

A super list I keep coming back to. Is there any reason the db x-trackers Stoxx Global Select Dividend 100 ETF used is the US dollar version (XGSD), rather than the UK pound version (XGDD)?

According to the information above there are 2 versions of BlackRock Tracker funds – A (higher TER) and D (lower TER). HL only appears to offer the A version. So I went to the BlackRock website and see there are A and D units listed in the small print for some but not all of the funds I looked at listed in your text (but the TER is is only listed for the whole fund). I use Barclays Stockbrokers as well and they also only list the A units. What’s the difference apart from the higher charge and who deals in the D units??

Hi All,
Can anyone explain to me the advantage of owning a corporate bond index fund,when I already own a FTSE 100 and a FTSE Developed World ex UK equity index fund?
I also own a Vanguard Index Linked Gilt Fund.
Many thanks in advance.

Vanguard seem to be cutting some charges.

https://www.vanguard.co.uk/documents/portal/press_releases/vanguard-lowers-ter-on-23-irish-domiciled-funds.pdf

In the Global Equity sector, Fidelity Moneybuilder World Index (ISIN GB00B8075673) seems to have a charge of 0.1% (plus “other charges” of 0.2%), but that would still make it a second-best-buy? (Info from a mailshot sent to me by Hargreaves Lansdown today – they helpfully indicated all the funds attracting a platform charge, which of course are the interesting ones…..)

Fellrunner

The cheapest I could find was and which I use to hold Vanguard funds are are accounts with shareprice.co.uk and selftrade.co.uk By dint of my circumstances, the former happens to be non-ISA, and the latter an ISA account. Automatically reinvesting dividends seems to keep the costs to a minimum.
Hope this helps.

Hi, is it correct above that “Vanguard FTSE 100 ETF (VUKE)” is an accumulation fund?

See : https://www.vanguard.co.uk/uk/mvc/loadPDF?docId=1014

Cheers

Re-read the call-out box above:

Note: The Vanguard, HSBC, BlackRock, and L&G funds listed below are index funds. Codes are given for the accumulation funds;…

My mistake!

That’s awesome Naar. Great find. I wonder if there’s a crazy catch like minimum investment £100K or something but maybe not. Several brokers make L&G institutional bond trackers available that aren’t even listed on the tracker section of L&G’s website.

Ross, based on the information you’ve given, there is nothing obvious you’ve missed. As long as you’re happy with that particular fund’s asset allocation then Vanguard’s LifeStrategy funds are a good choice.

Thanks for the feedback @The Accumulator. Having just read Narr’s post however I’m starting to rethink. That HSBC FTSE All Share (TER 0.02%) is also available on YouInvest’s platform and pretty tempting! I guess swapping it in for the Vanguard fund would need me to effectively do my own diversification through seperate bond funds etc….I guess I need to work out how the extra £1.50 charges for each additional fund I regularly buy will balance against the 0.27% TER extra that the Vanguard costs compared to the HSBC and of course the TER of any bond funds etc!

Food for thought!

Halifax sharedealing will allow investment in the HSBC All Share (Acc) with no minimum investment, no annual mgmt charge and no trade fees. Only the HSBC 0.02% TER to pay. Bargain!

@Naar

I think that is often true, such as with the Vanguard funds. But I’m guessing (and could be wrong) this one is not one that is meant to be sold in this way, judging by the almost non-existent TER. I’m not saying you should not have bought it, given the opportunity, but I’m curious what the repercussions might be.

Naar – My first attempt at “back of the envelope” calculations (assuming £300 per month and twelve monthly investments) is that investing in the HSBC instead of the Vangaurd would save me roughly £15 over the year.
Not bad but the additional cost of investing in a bond/gilt fund to achieve some simple diversification (12 x £1.50 trade) would more than wipe the savings out and likely not provide the same level of diversification as the Vanguard.

All in all, until my portfolio is considerably larger in size (i.e. transaction costs become a much smaller %), I think its going to be hard to beat the simplicity of the all-in-one Vanguard.

Ross

I’m confused. The HSBC FTSE All Share fund listed above (GB0030334345) is described as having an OCF of 0.02%, but on the iii factsheet for this fund, it says “Total Expense Ratio 0.27%”. A Fundinfo site quotes TER as 0.03%. Morningstar say 0.02%. Trustnet say 0.25%. Which one am I supposed to believe?

Where does Trustnet say 0.25% TER? It says o.o2% OCF here:
http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=CPUKI&univ=U&pagetype=overview

Regarding the Value Equity comment about Dimensional Funds not being directly available, I’ve been looking at the iWeb list, and they offer
Dimensional UK Value Inc, GB0033771659
Dimensional UK Value Acc, GB0033771766
Dimensional International Value Inc, GB0033772178
Dimensional International Value Acc, GB0033772285
iWeb have confirmed that these are available via their share dealing account (but not for an ISA or SIPP). Are these the Value funds we’re looking for?

There seem to be a stack of Dimensional funds available through II, too. They come up if you use the search box on the dealing screen, when logged in.

I have bought Dimensional on TD direct. Although I think there was a confusion and TD wrongly informed me they were trail based so wouldn’t let em buy them any more. I haven’t tried since.

The actual email conversation I had with iWeb was;
Me: “I’m interested in the Dimensional Fund Advisors funds (eg United Kingdom Value Fund, ISIN: GB0033771659) . They show up in your Fund Centre, but I’ve read elsewhere these are only available via a Financial Adviser – can you confirm that I would be able to trade these funds online myself if I held one of your accounts? ”
iWeb: “Thank you for your e-mail. I have looked into this OEIC and it is available in a share dealing account but not in an ISA. ”
That seems to imply they are available. I don’t (yet) have an account with iWeb, so I can’t confirm if it would actually work or not, but I can’t see why not.

Robert, that’s a great find. Are they also available in SIPPs and ISAs? It wouldn’t surprise me if this is a loophole that gets shut down. This has happened on Sippdeal and Charles Stanley (and possibly also on TD Direct given Geo’s experience).

@Accumulator
I can’t be sure either way about whether II allow them within a SIPP or ISA, but I know that when I was looking at iWeb, the Dimensional funds were explicitly restricted to Trading accounts, (ie excluded from ISA and SIPP). I’m not sure why this was the case, but presumably it would be the same across all brokers??

Interesting. 5 years ago I was very keen to buy Dimensional funds, but was put off because I would have had to pay at least 0.5% to an IFA, on top of the OCF of the fund. Now, it would appear I can buy them without any cost other than the OCF and iii dealing fee. However, straight passive funds have got much cheaper in the meantime, so Dimensional have a hurdle to overcome.

eg, their UK Value fund has an OCF of 0.54%, whereas Vanguard’s entry into the UK passive market has brought down prices for UK simple trackers to around 0.1-0.15%, so Dimensional costs 0.4% more. So, it needs to outperform by that much, just to keep up with a simple tracker. In fact, with an OCF of 0.54%, its costs are closer to active funds than to the cheapest passive funds.

I might still buy some, because the value premium should be higher than 0.4%, although last time I looked, Dimensional funds were not generally outperforming.

I have just been looking on their website and all their value funds (which are the ones for which it is hard to find equivalents elsewhere) have underperformed the index since inception of the fund (8-10 years), other than Europe Value, which has managed 1% better. Perhaps the last ten years have not been kind to value strategies, but I’m not sure I’m going to jump in while the loophole is there.

@TA

If you meant what index was I comparing the DFA funds with, it was the index they use on their fact sheets for each value fund. I was using their own figures about performance.

That’s just 5 years. The fund did incredibly badly in the crash of 07-08, which is just before your 5 years start.

Since inception, ten years ago, the picture is less rosy. DFA’s own comparison is here: http://eu.dimensional.com/media/documents/downloads/uk/pdf/fact_sheets/uk/value_fund.pdf

For ETF’s that are capitalising and don’t seemingly pay out a dividend (for example I hold CUKX, which I plan to change, but its a UK FTSE tracker that has never paid out before) – for tax purposes do we have to calculate the dividend ourselves? If so, how? It doesn’t show up at all with the rest of my divvies in my broker. Or is this seemingly a ‘free lunch’ dividend tax wise?
As a high rate tax payer with a good CGT allowance, would I be better off buying capitalising non-dividend paying ETFs, or am I just giving myself the illusion I’m better off?

Thanks again!

@Kanine

Good question. A quick google throws up some contradictory answers, but I’m going to go with the FT:
“Many higher-rate taxpayers prefer capitalising ETFs as all gains are taxed as capital, whereas the dividends from distributing ETFs are treated as income.”

http://www.ft.com/cms/s/0/bb99adf4-ea02-11e2-913c-00144feabdc0.html#axzz2wOgUbPSx

So, it is different from an accumulating unit trust.

Is this relevant?

http://www.hmrc.gov.uk/manuals/ofmanual/OFM02300.htm

UK investors must make a return of their income to include both the actual distributions received, as well as the ‘reported income’ (i.e. their proportionate share of the fund’s reportable income in excess of the sums distributed). They will be liable to income or corporation tax as appropriate on the total of those sums.

I initially assumed that ETFs would be taxed like unit trusts, but that FT article seemed to say otherwise. However, Snowman’s links seem to indicate that the FT is wrong.

Sounds like there is effectively a “look through”, so if the ETF does not distribute some of its income you are taxed on it as if it was your income rather than the ETF’s. But if that were right, surely there would be a need for some complex adjusting mechanisms, so that you aren’t taxed on the capital gain on future disposal of the ETF to the extent that the gain simply reflects income retained by the fund and already taxed as “reported income”. And if the reported income is subsequently distributed, the dividend should not be taxable. Do these mechanisms exist?

Snowman, I’ve not even heard of excess reportable income over distributions until now. I wonder what they are? Proceeds from stock lending, interest from cash holdings? And if an investor is going to be taxed on them then where do they show up in the return we get? I guess it’s time for a deep dive into the annual accounts.

More confirmation here:
http://uk.ishares.com/en/rc/about/tax

More discussion of ERI in a previous thread:
http://monevator.com/etf-only-portfolios/

Hi The Accumulator

It’s a bit of a Toyah Wilcox what excess reportable income represents.

An attempt is to start from this HMRC page, but if you do try that you will quickly lose the will to live.

http://www.hmrc.gov.uk/manuals/ofmanual/ofm24300.htm

I’m looking for (and failing to find) an Emerging Markets Index fund (not ETF!), cheap, UK domiciled, Income (not Accumulating). Can anyone help? (Vanguard are Ireland-domiciled, Blackrock seem to be accumulating funds, and most of the others are quite expensive.)

@Accumulator
Many thanks – perfect! I’ve been pulling together a set of low(ish) cost funds with the criteria I gave above. I’ve spread them across HSBC, Vanguard, L&G, Blackrock, Royal London, & Dimensional to give me maximum diversity. Paranoid? Not me! (Rates aren’t ideal, but I look at the extra cost as an insurance premium.)

Great stuff Ivan!

I think I am a lot clearer about how excess reportable income works, having read that.

Actually, having had a really good read of http://uk.ishares.com/publish/repository/documents/en/downloads/brochure_tax_update_new_uk_reporting_regime.pdf it seems to indicate to me that the answer now for capitalising ETF’s is yes, you do have to pay dividends and yes, it will be a pain to calculate them annually rather than to just work off the auto generated dividend figures a brokers give you. Is this what everyone else thinks? Cheers!

@Ivan

Thanks for your reply. I agree with you, as that’s what I understand too. But surely that’s just treating an ETF like any other typical dividend paying share i.e. taxed on the divvies and capital gains on sale? So how exactly are ETFs treated if they are NOT reporting then? Dividends are taxed at income rates rather than dividend rates?

Also another link to through in (which still in my mind doesn’t override the iShares document) http://www.ft.com/cms/s/0/2b80f908-8f69-11df-ac5d-00144feab49a.html#axzz2x9cKDvaP

“High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/2b80f908-8f69-11df-ac5d-00144feab49a.html#ixzz2x9czrwlZ

The issue is that UK-listed ETFs are not UK-based funds, typically domiciled in Dublin or the Channel Islands. This means profits are taxed as income instead of capital gains unless an ETF has “distributor status”, which allows it to benefit from the same tax treatment as onshore funds.”

When have profits ever been taxed as capital gains for a dividend paying ETF?

RE: INTERNATIONAL EX-UK VALUE EQUITY.
What about the PowerShares RAFI ETFs, SPDR Dividend Aristocrats ETFs and especially UBS’ MSCI USA Value UCITS ETF and MSCI EMU Value UCITS A? They all have a maximum of 0.5% TER as well, in the case of the UBS ones the TER is even only 0.2% and 0.25% respectively – yes, only US / EURO but way cheaper than the iShares one.
Or am I missing something?