This is our list of low-cost index funds and ETFs that’s kept updated to enable investors to find the cheapest index trackers available in the UK.
You can select from these funds to build a diversified portfolio that, as part of a passive investing strategy, will help you achieve your investing objectives.
We focus on value and cost in this list because crushing charges is a core component of wise investing. Every pound you save in fees is a pound that snowballs over the years and speeds you towards your financial goals.
Our piece on management fees explains how even small savings add up to a big difference.
The growing recognition of the importance of investment fees has driven explosive growth in low-cost index funds and Exchange Traded Funds (ETFs) over the past 20 years.
These two types of index tracker are the best value investment vehicles available in the UK and the right choice for passive investors.
Low-cost index funds UK – the Total Cost of Ownership
Our cheapest tracker fund UK list is divided into the key sub-asset classes you may wish to invest in.
The picks per asset class are ranked by their Total Cost of Ownership (TCO).
The TCO is the sum of a fund’s transaction costs and its Ongoing Charge Figure (OCF).
Many outlets will only reveal a fund’s OCF (or Total Expense Ratio) but that misses out a significant chunk of cost embodied by its less well publicised transaction cost figure.
Transaction costs are the fees and taxes that all investment funds inevitably incur when trading their underlying assets.
We think it’s important to include transaction costs when considering your shortlist because these charges can rival the OCF in particular sub-asset classes.
Note: fund costs are a complex and confusing area so we’ve got a few more notes about fees after the main list below.
In the meantime, let’s go grab some bargains!
UK large cap equity
- Vanguard FTSE UK All Share Index Unit Trust (GB00B3X7QG63) TCO 0.06% (OCF 0.06%, Transaction 0%)
- HSBC FTSE All Share Index Fund Institutional (GB0030334345) TCO 0.07% (OCF 0.02%, Transaction 0.05%)
- Lyxor Core UK Equity All Cap ETF (LCUK) TCO 0.1% (OCF 0.04%, Transaction 0.06%)
- Fidelity Index UK Fund P (GB00BJS8SF95) TCO 0.1% (OCF 0.06%, Transaction 0.04%)
- L&G UK Equity ETF (LGUK) TCO 0.12% (OCF 0.05%, Transaction 0.07%)
The L&G ETF has an ESG remit.
UK mid cap equity
- Amundi Prime UK Mid and Small Cap ETF (PRUK) TCO 0.05% (OCF 0.05%, Transaction 0%)
- HSBC FTSE 250 Index Fund C (GB00B80QG052) TCO 0.19% (OCF 0.1%, Transaction 0.09%)
- Vanguard FTSE 250 ETF (VMIG) TCO 0.22% (OCF 0.1%, Transaction 0.12%)
- Xtrackers FTSE 250 ETF (XMCX) TCO 0.24% (OCF 0.16%, Transaction 0.08%)
The Amundi index tracker is streets ahead of its rivals due to Morningstar’s report of zero transaction costs. We’ve requested verification from Amundi.
UK small cap equity
There are no good low-cost index funds available for the UK small cap asset class. The iShares ETF listed below is more an expensive FTSE 250 tracker. Our other suggestions are active funds and are shown as a selection of what’s available rather than a comprehensive survey.
- Schroder Institutional UK Smaller Companies Fund (GB0007893984) TCO 0.53% (OCF 0.51%, Transaction 0.02%)
- iShares MSCI UK Small Cap ETF (CUKS) TCO 0.58% (OCF 0.58%, Transaction 0%)
- Baillie Gifford British Smaller Companies B Fund (GB0005931356) TCO 0.73% (OCF 0.73%, Transaction 0%)
- L&G UK Smaller Companies Fund (GB00B7LFF300) TCO 0.79% (OCF 0.78%, Transaction 0.01%)
UK equity income
- Vanguard FTSE UK Equity Income Index Fund (GB00B59G4H82) TCO 0.29% (OCF 0.14%, Transaction 0.15%)
- WisdomTree UK Equity Income ETF (WUKD) TCO 0.35% (OCF 0.29%, Transaction 0.06%)
- SPDR S&P UK Dividend Aristocrats ETF (UKDV) TCO 0.64% (OCF 0.3%, Transaction 0.34%)
Global equity – developed world and emerging markets (All-World)
- HSBC FTSE All-World Index Fund C (GB00BMJJJF91) TCO 0.13% (OCF 0.13%, Transaction 0%)
- iShares MSCI ACWI ETF (SSAC) TCO 0.20% (OCF 0.2%, Transaction 0%)
- Fidelity Allocator World Fund W (GB00B9777B62) TCO 0.21% (OCF 0.2%, Transaction 0.01%)
- Vanguard LifeStrategy 100% Equity Fund (GB00B41XG308) TCO 0.23%(OCF 0.22%, Transaction 0.01%)
- Vanguard ESG Global All Cap ETF (V3AB) TCO 0.31% (OCF 0.24%, Transaction 0.07%)
Vanguard LifeStrategy and Fidelity Allocator invest in other index trackers. Fidelity invests in REITs and small caps.
World equity – developed world only
- Amundi Prime Global ETF (PRWU) TCO 0.05% (OCF 0.05%, Transaction 0%)
- L&G Global Equity ETF (LGGG) TCO 0.11% (OCF 0.1%, Transaction 0.01%)
- Lyxor Core MSCI World ETF (LCWL) TCO 0.12% (OCF 0.12%, Transaction 0%)
- SPDR MSCI World ETF (SWLD) TCO 0.13% (OCF 0.12%, Transaction 0.01%)
- iShares Developed World Index Fund D (IE00BD0NCL49) TCO 0.12%(OCF 0.12%, Transaction 0%)
- Fidelity Index World Fund P (GB00BJS8SJ34) TCO 0.12% (OCF 0.12%, Transaction 0%)
The L&G ETF has an ESG remit.
World ex-UK equity
- L&G International Index Trust I Fund (GB00B2Q6HW61) TCO 0.14% (OCF 0.13%, Transaction 0.01%)
- Vanguard FTSE Dev World ex-UK Equity Index Fund (GB00B59G4Q73) TCO 0.15% (OCF 0.14%, Transaction 0.01%)
- Aviva Investors International Index Tracking SC2 Fund (GB00B2NRNX53) TCO 0.25% (OCF 0.25%, Transaction 0%)
You can also pick ‘n’ mix using individual US, Europe ex-UK, Japan, and Pacific ex-Japan trackers.
World income equity
- Vanguard FTSE All-World High Dividend Yield ETF (VHYG) TCO 0.37% (OCF 0.29%, Transaction 0.08%)
- iShares MSCI World Quality Dividend ESG ETF (WQDA) TCO 0.38% (OCF 0.38%, Transaction 0%)
- Fidelity Global Quality Income ETF (FGQD) TCO 0.43% (OCF 0.4%, Transaction 0.03%)
- WisdomTree Global Quality Dividend Growth ETF (GGRG) TCO 0.43% (OCF 0.38%, Transaction 0.05%)
- Vanguard Global Equity Income Fund (GB00BZ82ZW98) TCO 0.58% (OCF 0.48%, Transaction 0.1%)
The Vanguard fund is active but gives you a non-ETF option.
World small cap equity
- UBS (Irl) ETF – MSCI World Small Cap Socially Responsible (WSCR) TCO 0.3% (OCF 0.23%, Transaction 0.07%)
- Vanguard Global Small-Cap Index Fund (IE00B3X1NT05) TCO 0.34% (OCF 0.3%, Transaction 0.04%)
- iShares MSCI World Small Cap ETF (WLDS) TCO 0.35% (OCF 0.35%, Transaction 0%)
- SPDR MSCI World Small Cap ETF (WOSC) TCO 0.47% (OCF 0.45%, Transaction 0.02%)
Emerging markets equity
- Amundi Prime Emerging Markets ETF (PRAM) TCO 0.1% (OCF 0.1%, Transaction 0%)
- Lyxor MSCI Emerging Markets ETF (LEMA) TCO 0.17% (OCF 0.17%, Transaction 0%)
- HSBC MSCI Emerging Markets Index ETF (HMEC) TCO 0.21% (OCF 0.15%, Transaction 0.06%)
- Fidelity Index Emerging Markets Fund P (GB00BHZK8D21) TCO 0.21% (OCF 0.2%, Transaction 0.01%)
- HSBC Emerging Market Sustainable Equity ETF (HSEF) TCO 0.29% (OCF 0.18%, Transaction 0.11%)
Multi-factor – Global
- JPMorgan Global Equity Multi-Factor ETF (JPLG) TCO 0.22%(OCF 0.19%, Transaction 0.03%)
- Invesco Quantitative Strategies ESG Global Equity Multi-Factor ETF (IQSA) TCO 0.3% (OCF 0.3%, Transaction 0%)
- Invesco Global ex UK Enhanced Index Fund Y (GB00BZ8GWR50) TCO 0.34% (OCF 0.23%, Transaction 0.11%)
- Franklin LibertyQ Global Equity SRI ETF (FLXG) TCO 0.4% (OCF 0.4%, Transaction 0%)
- Amundi ETF Global Equity Multi Smart Allocation Scientific Beta ETF (SMRU) TCO 0.41% (OCF 0.4%, Transaction 0.01%)
All factor investing is effectively straying into active management territory. Essentially, you hope that your chosen subset of the market can outperform. The important thing is to choose products underpinned by sound financial theory, a verifiable set of rules, and a commitment to low costs.
Regional ETFs are available. But we’ve stuck to global multifactor products for broad diversification.
Property – UK
- iShares UK Property ETF (IUKP) TCO 0.4% (OCF 0.4%, Transaction 0%)
- iShares MSCI Target UK Real Estate ETF (UKRE) TCO 0.43% (OCF 0.4%, Transaction 0.03%)
No index fund alternative.
Property – global
- iShares Global Property Securities Equity Index Fund D (GB00B5BFJG71) TCO 0.23% (OCF 0.17%, Transaction 0.06%)
- Amundi ETF FTSE EPRA/NAREIT Global ETF (EPRA) TCO 0.24% (OCF 0.24%, Transaction 0%)
- VanEck Global Real Estate ETF (TREG) TCO 0.26% (OCF 0.25%, Transaction 0.01%)
- L&G Global Real Estate Dividend Index Fund I (GB00BYW7CN38) TCO 0.27% (OCF 0.22%, Transaction 0.05%)
- Northern Trust Developed Real Estate ESG Index Fund (NL00150003F8) TCO 0.31% (OCF 0.28%, Transaction 0.03%)
There’s an unusual 1% exit fee on the Northern Trust fund. It’s also Dutch domiciled so watch out for withholding tax.
- L&G All Commodities ETF (BCOM) TCO 0.15% (OCF 0.15%, Transaction 0%)
- iShares Diversified Commodity Swap ETF (COMM) TCO 0.26% (OCF 0.19%, Transaction 0.07%)
- iShares Bloomberg Enhanced Roll Yield Commodity Swap ETF (ROLL) TCO 0.28% (OCF 0.28%, Transaction 0%)
- WisdomTree Broad Commodities ETF (COMX) TCO 0.37% (OCF 0.29%, Transaction 0.08%)
- Amundi Physical Gold ETC (GLDA) TCO 0.12% (OCF 0.12%, Transaction 0%)
- Invesco Physical Gold A ETC (SGLP) TCO 0.12% (OCF 0.12%, Transaction 0%)
- WisdomTree Core Physical Gold ETC (GLDW) TCO 0.12% (OCF 0.12%, Transaction 0%)
- Xtrackers IE Physical Gold ETC (XGDU) TCO 0.12% (OCF 0.12%, Transaction 0%)
Gold trackers are Exchange Traded Commodities (ETCs).
UK Government bonds – intermediate
- Invesco UK Gilts ETF (GLTA) TCO 0.06% (OCF 0.06%, Transaction 0%)
- Lyxor Core UK Government Bond ETF (GILS) TCO 0.08% (OCF 0.07%, Transaction 0.01%)
- Vanguard UK Gilt ETF (VGVA) TCO 0.1% (OCF 0.07%, Transaction 0.03%)
- Fidelity Index UK Gilt Fund P (GB00BMQ57G79) TCO 0.1% (OCF 0.1%, Transaction 0%)
- iShares GiltTrak Index Fund (IE00BD0NC250) TCO 0.12% (OCF 0.1%, Transaction 0.02%)
UK Government bonds – long
- Vanguard UK Long-Duration Gilt Index Fund (GB00B4M89245) TCO 0.12% (OCF 0.12%, Transaction 0%)
- SPDR Bloomberg Barclays 15+ Year Gilt ETF (GLTL) TCO 0.16% (OCF 0.15%, Transaction 0.01%)
- iShares Over 15 Years Gilts Index Fund (GB00BF338G29) TCO 0.16% (OCF 0.16%, Transaction 0%)
UK Government bonds – short
- Invesco UK Gilt 1-5 Year ETF (GLT5) TCO 0.06% (OCF 0.06%, Transaction 0%)
- L&G UK Gilt 0-5 Year ETF (UKG5) TCO 0.06% (OCF 0.06%, Transaction 0%)
- Goldman Sachs Access UK Gilts 1-10 Years ETF (GIL5) TCO 0.07% (OCF 0.07%, Transaction 0%)
- iShares UK Gilts 0-5 ETF (IGLS) TCO 0.1% (OCF 0.07%, Transaction 0.03%)
- JPMorgan BetaBuilders UK Gilt 1-5 yr ETF (JG15) TCO 0.1% (OCF 0.07%, Transaction 0.03%)
The Goldman Sachs ETF has a longer bond duration than the other short-dated funds in this section, but it’s not quite an intermediate fund.
UK Government bonds – index-linked
- Lyxor Core UK Government Inflation-Linked Bond ETF (GILI) TCO 0.08% (OCF 0.07%, Transaction 0.01%)
- Vanguard UK Inflation Linked Gilt Index Fund (GB00B45Q9038) TCO 0.13% (OCF 0.12%, Transaction 0.01%)
- iShares £ Index-Linked Gilts ETF (INXG) TCO 0.14% (OCF 0.1%, Transaction 0.04%)
- L&G All Stocks Index Linked Gilt Index Trust I (GB00B84QXT94) TCO 0.15% (OCF 0.15%, Transaction 0%)
UK index-linked funds may not be suitable for your portfolio due to embedded real interest risk. We’ve switched our Slow and Steady portfolio to a short duration global index-linked fund hedged to GBP. See below.
Global inflation-linked bonds hedged to £
- Lyxor Core Global Inflation-Linked 1-10Y Bond ETF (GISG) TCO 0.22% (OCF 0.2%, Transaction 0.02%)
- iShares Global Inflation Linked Government Bond ETF (GILG) TCO 0.24% (OCF 0.2%, Transaction 0.04%)
- L&G Global Inflation Linked Bond Index Fund I (GB00BBHXNN27) TCO 0.27% (OCF 0.23%, Transaction 0.04%)
- Xtrackers Global Inflation Linked Bond ETF (XGIG) TCO 0.28% (OCF 0.25%, Transaction 0.03%)
- Royal London Short Duration Global Index Linked Fund M (GB00BD050F05) TCO 0.27% (OCF 0.27%, Transaction 0%)
All are short and intermediate options, hedged back to Sterling. The Royal London fund is active.
Global government bonds hedged to £
- Amundi Index JP Morgan GBI Global Govies ETF (GOVG) TCO 0.17% (OCF 0.15%, Transaction 0.02%)
- HSBC Global Funds ICAV – Global Government Bond Index Fund – BDHGBP (IE00BDFD2S67) TCO 0.22% (OCF 0.22%, Transaction 0%)
- iShares Global Govt Bond ETF (IGLH) TCO 0.25% (OCF 0.25%, Transaction 0%)
- Xtrackers Global Government Bond ETF (XGSG) TCO 0.29% (OCF 0.25%, Transaction 0.04%)
All hedged back to Sterling. The HSBC fund invests in emerging markets but the allocation is unknown as it is highly opaque for an index fund. Proceed with caution.
Total global bonds hedged to £ (government and corporate)
- Amundi Index Global Aggregate 500M ETF (AGHG) TCO 0.09% (OCF 0.08%, Transaction 0.01%)
- iShares Core Global Aggregate Bond ETF (AGBP) TCO 0.1% (OCF 0.1%, Transaction 0%)
- iShares Global Aggregate Bond ESG ETF (AEGG) TCO 0.12% (OCF 0.1%, Transaction 0.02%)
- Vanguard Global Bond Index Fund (IE00B50W2R13) TCO 0.27% (OCF 0.15%, Transaction 0.12%)
- Vanguard Global Short Term Bond Index Fund (IE00BH65QG55) TCO 0.29% (OCF 0.15%, Transaction 0.14%)
All hedged back to Sterling.
Using cheapest index funds UK list
You can precisely identify the low-cost index funds you’re after by using the ISIN codes or ETF tickers we provide in brackets. (This piece helps explain fund names.)
We’ve given the code for the accumulation fund, GBP-priced version where available. Income distributing versions are usually offered too.
This piece explains the ins and outs of accumulation vs income funds.
- We’ve included an Environmental, Social, and Governance (ESG) index tracker option for each sub asset-class where available.
- Actively managed funds are used when low-cost index funds are not available. Active funds are noted in the relevant sections.
- We don’t show platform exclusive index trackers as they’re generally not a good deal overall.
Cheap index trackers and costs – extra detail
The bid-offer spread is an additional cost you may incur that isn’t captured by the TCO figure above.
This charge shouldn’t be significant for most passive investors anyway but you can gauge it by using the estimated spread published by Hargreaves Lansdown on its fund pages.
The final significant cost you’ll pay are broker fees – we track those on our broker comparison table.
Watch out for FX fees charged by brokers on certain funds. This is something of a stealth cost that’s quite avoidable.
Some providers of synthetic ETFs publish a ‘swap fee’ on top of the TER. Just add the swap fee to the TER to get the Ongoing Charge Figure. This is how we’ve treated swap fees in the listing above.
It’s worth knowing that a fund’s transaction costs can fluctuate quite a lot from period to period, especially if there’s excessive turnover in the fund’s index.
So don’t feel like you instantly need to switch if your fund’s transaction costs suddenly spike.
Keep your fund, and its main rivals, under review for up to a year before coming to any definitive conclusions about its competitiveness.
Some index trackers register negative transaction costs but I’ve disregarded that from the TCO calculations above. That’s because negative transaction costs amount to an accounting technique that’s not sustainable over time.
Low-cost index funds UK – fees to ignore
Ignore a fund’s Annual Management Charge (AMC). The AMC is a very old-fashioned fee metric that excludes important fund costs.
This is why a fund’s AMC is typically lower than its OCF or TER.
Do not add the AMC to the OCF or TER.
The OCF and TER are interchangeable, so choose one of those costs (the highest) and add it to the fund’s transaction cost to calculate its TCO.
Treat negative transaction costs as zero.
Ignore entry and exit charges for index trackers where you see them mentioned in fund literature such as Key Investor Information Documents.
These fees do not apply to ordinary investors like you and I. They’re levied on institutional participants dealing directly with the fund provider.
The same goes if you see an eye-watering minimum purchase figure (such as £100,000) to buy into a fund.
Be guided by your broker’s minimum purchase amount.
Final thoughts on low-cost index funds and ETFs
There’s often little to distinguish index trackers that are closely matched in price. However we have previously written a few pieces to help you resolve tie-breaker situations:
- Comparing funds
- Why tracking difference is important
- How to choose index trackers
- Best global tracker funds
- How to choose a bond fund
- Best bond funds
If you’re looking for the cheapest place to buy and hold your low-cost index funds then take a look at our broker comparison table.
Our article on designing your own asset allocation will help you construct your own portfolio. If you want a quick shortcut, you can do a lot worse than checking out our best multi-asset fund picks for an instant portfolio solution.
We update this list periodically. Quoted TCOs may date, as fund groups fight their turf wars by undercutting each other (hurrah!) but this article should still prove an excellent starting point for your research.
If anyone comes across any better index tracker options I’d love to hear about them in the comments below.
Take it steady,
Note: Some comments below may refer to an older collection of low-cost index trackers. Scroll down for the latest thoughts.
@Accumulator – Many thanks for signposting the extra reading, this has really clarified things and helped firm up my thoughts! Thank you.
I’ve also dug deeper into the site and have now spent many hours reading and following links. Apologies for been so hasty jumping in asking questions so quickly without fully taking the time to look what had already been written. This really is an amazing resource I can’t thank you enough for all the time and effort you put into your research, articles and taking the time to personally respond to questions.
I noticed a reference to Bridlington in one of your posts, I’m from East Yorkshire myself and have spent many weekend there as a kid stuffing my face with doughnuts and lemon tops! 🙂 (I not found any information about the authors so it looks like you post anonymously) I just wondered if that was your neck of the woods.
Thanks again for your prompt reply!
Scary hidden charges on ETFs? Check the KIID!
Looking at “World equity”, you list one ETF: “HSBC MSCI World ETF (HMWO) OCF 0.15%”
I am looking at ETFs only because my platform AJ Bell Youinvest does not charge for ETFs but does for OEIC funds. At first sight the 0.15% compares favourably with Vanguards similar ETF “Vanguard FTSE Developed World UCITS ETF” which charges 0.18% but lets have a glance at the KIID like we are supposed to eh?
“One-off charges taken before or after you invest: Entry charge 3.00% Exit charge 3.00%”
Seriously! This is HSBCs own KIID for this ETF! (The Vanguard ETF KIID says 0% and 0% entry and exit)
So why does this MASSIVE THREE PERCENT INITIAL CHARGE not appear on the morning star’s fees page for this HSBC ETF?
So why does this MASSIVE THREE PERCENT INITIAL CHARGE not appear on the FT fees page for the for this HSBC ETF?:
So why does this MASSIVE THREE PERCENT INITIAL CHARGE not appear on the Hargreaves Landsdown page for for this HSBC ETF?:
So if the FT, Hargreaves Landsdown and Morning star are all saying “initial charge 0%” but HSBCs KIID for the fund is saying a MASSIVE THREE PERCENT INITIAL CHARGE. What the F is going on? How is this 3% being taken??????????????????????????????????????????????????????????????????????????????????
As an ETF is traded like a stock, perhaps it comes from the bid offer spread from the market maker?
No apparently not. HL reports HSBC ETFS PLC MSCI WORLD ETF GBP (HMWO) Sell:1,515.50p Buy:1,517.00p for Prices as at close on 17 January 2019 .
So what is obliging HSBC to report 3% entry and exit in there own KIID that is so widely being ignored by FT HL and morning*? I’m sure HSBC would much rather leave it out.
You can get the KIID direct from HSBC here: https://www.etf.hsbc.com/etf/uk/professional?fundid=HETF017
Anybody know whats going on here?
(Click the “ETF Literature” tab on the link in my previous post and the KIID is in the list)
@Kwakil — Evening! I appreciate you’re concerned, but please don’t shout, and one question mark will suffice. 🙂
One won’t pay that 3% charge when one buys or sells that ETF. I forget the specific reason it’s listed in the KIID — one of our amazingly informed readers will hopefully pop along and remind us — but anyway, as a retail investor buying mainstream ETFs on retail platforms, there are no such explicit exit or entry fees to be paid.
Good news I hope! 🙂
I should have read the KIID properly:
“No entry or exit charge is payable where shares are purchased/sold on a stock exchange. Investors need only pay any relevant broker and stock exchange fees and commissions.”
“Investors buying and selling shares on stock exchanges can obtain the actual charges from their financial adviser, stock broker, share dealing service or third party administrator.
So (my) panic over!
Thanks for this great post!
“A high-yielding fund is a distant cousin of value and not always a pretty one at that”
Could you please explain it more in detail? The meaning of value, high yielding, and why they are non equivalent investment tools. Or simply, share some sources where this is already explained (I couldn’t find any myself)
Thanks again and keep up the great work.
@Jack — There’s been lots of discussion over the past few years about whether dividend shares are just value stocks in disguise, and poor ones at that. Keep in mind when researching all this stuff though that the goalposts are constantly moving (e.g. The old king of value, price-to-book, has been terrible in the more recent times.)
The quant Meb Faber has written a fair bit about it:
I’m interested to understand fully the difference between L&G International Index and HSBC Ftse All World Index – I’ve looked at the fund fact sheets and Google but am still a bit confused!
Q:- Does L&G contain small cap and emerging markets?
Q:- Is the only difference that L&G doesn’t include the UK?
L&G Int index 0.08% chg, L&G Uk index fund 0.04% chg & Ishares emerging markets equity index 0.24% chg- all with Hargreaves Lansdown. Split – 6% in UK 10% EM & rest in Int Index
World coverage including Emerging Markets with the cheapest funds possible. I would prefer one fund that does everything but not at the expense of charges. Would the HSBC fund be better even though fund chg is more expensive @ 0.16% with HL? Currently I’m guessing at the correct % split allocations in my 3 funds hence being curious in the HSBC fund?
You say that the iShares Ultrashort Bond ETF could be handy for deaccumulators. Could you explain in what way or point to some articles about deaccumulation?
For the Vangaurd All World ETF, you’ve given it the Lyxor ticker (LCWL) instead of VWRL.
I guess the SPDR Global Dividend Aristocrats ETF just fails to make the cut with its 0.45% charge. I hold this, it will be interesting to see how it behaves in a major downturn. Still have memories of the iShares UK Dividend Plus fund which was all the race up to 2008. Recall it was a bloodbath.
Thanks for this list: excellent starting point.
Wasn’t there some careless talk about a book in the near future 🙂
I’ve been pondering currency risk recently, and wanted to understand why many global bond funds are currency hedged, unlike most equity funds. Specifically the Vanguard Lifestrategy funds bond element comprises currency hedged global bonds, and I therefore hold rather a lot of this kind of asset.
Are there any Monevator articles that cover this?
My own gut feeling is that I don’t really feel comfortable with a mix of global bonds which are currency hedged, because it’s the sort of complication that I don’t fully understand. I’d rather hold mainly UK government bond funds, which I think I do understand, and allocate a small portion of my bonds to unhedged euro and dollar government bonds to diversify currency risk. This doesn’t seem to be an easy or low cost thing to do – I’ve had a quick look for unhedged euro and dollar bond funds – plus I wonder what charges I might be incurring converting back to sterling. What am I missing here? Is my idea misguided?
@Vanguardfan — That’s one of my long promised and unfinished articles. It’s basically down to a mix of theory (return profile/time horizon of lower return bonds and lack of natural hedging) and evidence (from memory on a risk adjusted basis hedged bond funds proved better). Finally there’s the role of bonds — to add stability. Currency moves can knock 10% or more off valuations very short term (even overnight — like EU Referendum). Experts debate relative importance of all the points, but all told it’s much more consensus position to hedge then with equities. Will try to finish article!
@vanguardfan. That’s odd, I would have said it is harder to find hedged than unhedged bonds, eg
However, isn’t using unhedged bond funds mixing bond allocation with currency speculation? If you think the pound is overvalued now then ok I guess. Hedging with equity funds I have seen discussed much.
@TI, MrO, thanks.
Yes, I recognise that buying unhedged bonds in foreign currency will result in high levels of volatility and really it is not what the bond allocation of the PF is for. I also recognise that this is partly a cognitive bias in response to the pound weakening – I suddenly wonder if I should have some cash or cash-like exposure to haven currencies (if one would describe the euro as such – I suppose I really mean widely used currencies from countries I do actually travel to). And I am aware that moving into these currencies now would be falling into the usual psychological trap of buying low…
So I’m pondering rather than acting at the moment. My problem is this. I am FI, so at capital preservation/decumulating stage rather than accumulating. I have about 50 year time horizon, and my asset allocation is 50% equities (probably about 1/3 UK, I really should check that properly…), and the other 50% is split roughly 17% bonds and 33% cash. (Yes I know it’s a lot of cash, but it’s what helps me put the rest at greater risk). Anyway, that seems to me a lot of sterling, and I was wondering about whether I could find a way of holding some of that in non sterling.
It’s probably just unnecessary tinkering, and the most likely result of my pondering will be…nothing. But I’d welcome any thoughts. And I still instinctively don’t like holding those hedged global bond funds.
Edit – sorry I meant buying high, ie when the pound is weak.
I bought unhedged US treasuries to limit any annoyance if brexit causes GBP to sink. This one I think
However, a rising pound is what I really need to hedge as this will knock all overseas assets and ftse100.
I have too much cash too but am moving it to short dated bonds, hedged 🙂
A falling pound will boost overseas assets so don’t all the overseas stocks you hold provide effective foreign currency exposure?
Very surprised that MINV doesn’t get a mention
“Vanguard FTSE All-World ETF (LCWL) OCF 0.25% ” slight error here methinks.
Oops, thanks Algernond and Grislybear. Fixed.
@ Julie – you can work out your costs using the info on this piece:
L&G International Index Trust follows FTSE World ex UK index. Doesn’t contain small cap or emerging markets whereas the All-World index contains a smidge of both. It’s not going to amount to a whole hill of beans either way. Unless you love investing and are certain you’ll rebalance wisely no matter what, then it’s tough to beat the convenience of a one-stop fund.
@MrO I was persuaded to buy some hedged global short dated bonds (the Vanguard fund, natch) as a cash substitute, but I’m not convinced, I think I prefer the real thing. My cash holdings include a rolling ladder of 5 year fixed rate deposits (reinvesting into the best rate each year), ILSCs which will stay untouched as long as possible and premium bonds (which are instant access low return – but at least the interest is tax free), and I think I get a better return than the bond fund after expenses. So I’ll probably stick with that hefty allocation. The idea is that we’re supposed to be spending the stuff anyway…
But yes you are right that the overseas equities are probably enough currency diversification. So, back to sleep
I realise there’s a limit on how many sectors this guide should cover, but I’ve found these global aggregate bond trackers useful and cheap (‘aggregate’ here means it combines government and corporate bonds):
iShares Global Aggregate Bond UCITS ETF GBP Hedged (Dist) (ticker:AGBP) 0.10%
iShares Global Aggregate Bond UCITS ETF USD (Dist) GBP (ticker:SAGG) 0.10%
SPDR® Bloomberg Barclays Global Aggregate Bond UCITS ETF USD unhedged (GBP) (ticker:GLBL) 0.10%
SPDR® Bloomberg Barclays Global Aggregate Bond UCITS ETF GBP Hedged (GBP) (ticker:GLAB) 0.10%
Something like VWRL+AGBP or HMWO+EMIM+GLAB might be a reasonable ETF approximation of a LifeStrategy fund (albeit not automatically rebalancing). For some portfolio sizes, sticking to ETFs rather than funds can reduce broker fees.
Side note: I use Chrome browser on iPad and I’ve lost all styling on content again. I can clear cookies to fix but then I lose cookies for all sites which is inconvenient (no option to clear cookies for a single site on the iPad version of Chrome). This happened to me about month ago also.
IShares Global Bond Index GBP Hedged (AGBP) looks like a good alternative to, and follows the same Barclays Bloomberg index as, the Vanguard Global Bond Index Fund, and has an OCF of .1%.
I was looking at Unhedged Global Bond ETFs recently to use as a benchmark (as I’m a heretical Active Investor). The two I found were the iShares and SPDR ones that Charlie has helpfully mentioned a couple of comments above.
What I’m confused by is that in the past 9 months (when one of them started) the performance of the two has been unexpectedly different (iShares has done better) – I’d love to hear if anyone can explain this, as they’re tracking the same index.
Does anyone know of any tracker funds for short duration index-linked government bonds? I’ve only been able to find actively managed funds. Thanks in advance if you can help.
P.S. I’m looking because it doesn’t look like ILSCs are ever coming back, so I’m being forced into index-linked bonds. But most index linked bonds are long duration, which I don’t fancy when interest rates will presumably be rising sometime in the future (maybe).
There is an issue with ETFs denominated in US dollars paying dividends in dollars. The forex charge for converting back to GBP can make a modest difference to the cost of investing.
By way of example if you invest in VWRL (Vanguard World ETF) the current OCF is 0.25%, the current yield is 2.31% and the cost of a single forex transaction on my platform is 1.5%. If you run the figures the additional cost of exchanging dollar dividends to sterling is 0.035%. So the effective OCF is 0.285 not 0.25%.
@stl. Yes the royal London fund in the list!
@ vanguardfan – this is a Vanguard paper on the rationale for hedging international fixed income (in brief: you get same long-term return with lower volatility)
Thanks for the update. I too keep revisiting global investment grade inflation linked bond funds, the short duration Royal London offering may need revisiting
@Fremantle. I wasn’t sure about that short duration but in any case my ISA and SIPP providers don’t offer it. I settled on the Royal London and L&G funds, the L&G fund being slightly cheaper. They are both GBP hedged as I recall, the L&G fund definitely so. The effective duration of the L&G fund is reported as 7.99 years ( love the precision).
In as much that I feel the duration should in some way align with the reason for choosing the asset and the associationed timescale, and I worry about value in 10 years time ( for my lucky widow in case if the SIPP 🙂 ), the duration of the fund seemed ok. The RL fund ( not the short duration one), was similar except it’s duration is about 11 years. Morningstar says it’s hedged.
It has always annoyed me that WSML isn’t available on HL. WLDS is available, which I think might be the same thing?… but the volume is absolutely tiny.
Anyone aware of taxes being charged based on the domicile of the ETF despite it being held in an ISA wrapper?
Specifically, I hold VGOV in an ISA with AJ Bell Youinvest. In the last dividend payment I noticed they have taken 20% from the gross amount. When I contacted customer service they said it was because the ETF was domiciled in the Republc of Ireland. The strange thing is it’s the first time I see tax deducted on these dividends.
Was anyone aware of this? I thought having them in an ISA it meant not taxes charged at all!
Please ignore my latest. Seems to have been a glitch. I checked the document again and the full untaxed amount was paid into my cash account.
Thanks for all the lovely research!
I may be wrong, but should EMIM actually be EIMI?
@Ric scroll to the bottom of that link and you’ll see that EMIM is listed as the ticker for the GBP variant of that ETF.
This tripped me up too. And of course I would never admit that I actually bought the USD flavour by mistake once upon a time!
Short duration to protect capital in the event of successive rate rises – not so much scope for depreciation as you get to the top of the ladder more quickly and reset.
Matching assets to liabilities also works.
Thanks, but if I’ve understood the documentation for this fund correctly, it’s actively managed “using a combination of top-down analysis, based on our macroeconomic views overlaid with bottom-up security selection”. So I don’t think it’s a tracker.
@stl. True but ok by me. IL durations are huge.
I am new to this site but have been investing for a number of years now. I see recently a big push for passive investing as low charges etc but I wonder if I am missing something. I have investments in global funds and trusts- Fundsmith, lindsell train global fund, Scottish Mortgage investment trust are my main global holdings and all their returns easily beat the returns listed over 5 years on Hargreaves Lansdown research pages despite their higher charges. Is it that I am not looking over a long enough period?
@shaz M — Some few funds do beat the market. The three you mention are among the three best performing retail funds in the entire universe (of several thousand) of retail funds out there. 🙂
If you bought them — and put most of your investment money into them — five years ago, say, before they did so well, then congratulations. Perhaps you have a knack of picking great funds, or perhaps you were lucky. Time will tell! 🙂
However if you bought them after most of their great run, then the question is will they do as well over the next 5-10 years?
I like Nick Train and Terry Smith’s approach and think they have a chance, but the former would admit the market has been kind to his kind of shares over the past 5-10 years, and the latter is intellectually honest enough to admit there will be down periods for his style of investing, albeit he’s yet to see one. The Scottish Mortgage Trust guys are really growth/momentum investors. Nothing wrong with that, but again it’s been probably the best period for large cap tech since the late 1990s.
Bottom line: Some funds will beat passives, and if you own them in advance, and with enough of your investment pot to make up for those funds you pick that do worse, then that’s a winning strategy.
But the odds are against it, and for most people it’s not worth the bother of trying since they don’t need to beat the market to achieve their goals, and losing to the market would only hold them back.
Thanks for all your helpful tips and hints. I have set up a public watchlist on JustETF.com which summarises the LSE listed ETFs that track the FTSE All-World or MSCI World Indeces, along with their TERs and returns . Hopefully it will be useful to you too.
You mention in the piece that one can slice and dice an ‘all world’ ETF by buying up the constituent parts. If I wanted to do this, (for example because I want to buy N America separately because I think it’s overvalued)… what would I buy to represent the UK? The FTSE 250? VMID? Or would it be the FTSE 100 and 250?
So something like:
Asia ex-Japan (VAPX)
Europe ex-UK (VERX)
N America (VNRT)
I know it is extra hassle but I have a spreadsheet that calculates for me exactly how I need to rebalance so it isn’t really hassle. And I feel that buying the sectors independently offers more chance of dollar cost averaging.
If you want unhedged global sovereign bonds in OEIC form then iShares Overseas Government Bond Index Class H is worth a mention. Only 0.11% OCF. Arguably would do very well in a UK recession.
@ Nicholas Stone – if you want to own companies more exposed to the UK economy then FTSE 250. If you want companies representative of UK stock market then FTSE All-Share or you could achieve much the same with FTSE 100 + FTSE 250.
Does anyone know which platforms actually carry L&G Global Small Cap Index Fund (IE00BG0VVG79)? I’ve looked on HL, AJ Bell, Fidelity, IWeb, II and can’t find it anywhere?
Thanks for the tip re iShares Overseas Government Bond Index Fund. I was wondering why you recommend the Class H version instead of Class D? Class H has a lower OCF than Class D (0.11 vs 0.16) however it comes with a buy/sell spread which Class D does not have. I hold Class D since I do not understand how the two versions work out cost-wise and am more comfortable with a fixed price. But am wondering whether I’m overpaying on the OCF out of ignorance!
Thanks as ever for this information, what an amazing resource!
One quick update – L&G All Commodities ETF (BCOM) OCF 0.15% … now seems to have an OCF of 0.31 as quoted in KIIF … so probably not the most competitive anymore!
And one quick question – why can’t i hold Shares in L&G All Commodities ETF (BCOM) In my ISA? I use Charles Stanley Direct.
@Rizzor, may not be that mifid thing again but I had to fill out a sophisticated investor form for Alliance Savings to buy a physical gold etf, and Halifax stopped supporting INPP for the same root cause ( INPP hadn’t produced some document or other). Physical commodity ETN might cause them to twitch!
I own just one etf, the vanguard all World VWRL, which charges 0.25% in fees. Since buying it a few years ago I have transferred platforms a couple of times to minimise platform fees and it has saved me money. VWRL fees have stayed the same but its now possible to get an all world tracker for about half the fee price (developed world but let’s ignore that for the time being). Obviously selling VWRL and buying a competitor will cost money. I feel fairly loyal to Vanguard but would be interested to hear if others think it’s worth swapping to a different etf for lower fees and if so by how much? (It seems pointless to switch from 0.25 to 0.23 but if it was 0.1 for example)
@Peter Re: “Does anyone know which platforms actually carry L&G Global Small Cap Index Fund (IE00BG0VVG79)? I’ve looked on HL, AJ Bell, Fidelity, IWeb, II and can’t find it anywhere?”
It is not available on Charles Stanley Direct either.
I’ve emailed email@example.com, firstname.lastname@example.org and asked if and when it will be available on a retail platform.
@Peter “re: L&G Global Small Cap Index Fund (IE00BG0VVG79)”
Reply from legal and general:
“The L&G Global Small Cap Equity Index Fund is an ICAV so domiciled in Ireland. I [=L&G] am not certain that all of these platforms can hold Irish funds. I know that Hargreaves Lansdown is able to offer Irish domiciled funds but Hargreaves Lansdown has not requested for us to add this fund. If you would like to have the fund added, the best way to do this is to approach the platforms and request for the fund to be added as they need to see customer demand before agreeing to add funds. When the platform approaches us we will be more than happy to help facilitate adding the fund to the various platforms.”
I would like to invest in this fund too, so I will get onto ATS and AJBell next week and see what happens. (iWeb have added two UK funds for me in the past on two occasions but I don’t have an ISA with iWeb and there is no way I am buying an offshore fund outside a tax wrapper for tax return reasons)
@Kwakil. Don’t believe Irish domicile us relevant. The fund was established only in 2017 and it seems to take more than a year before platforms consider them. From what I have read here, the platforms need to do due diligence which takes time and I suppose they take a view as to whether demand justifies the effort. ETFs are more easily added I read on this blog sometime back.
I agree that from the holder’s perspective the fund domicile doesn’t seem relevant. I hold Irish domiciled funds in a taxable account and there seems no issue apart from the income gets put in a different place in the tax return. (There may be nuances I’m not aware of, and i don’t know if brexit will be an issue, I assume not at present as I haven’t picked up any info about it). We’re not talking about foreign listed shares here, which I know do have more significant tax issues.
I’m paranoid about “Excess Reportable Income”. Its a nightmare to calculate so I just avoid offshore funds/etfs in taxable accounts. (I had to try to do it for one Irish ETF and its a nightmare IMO so I’ve avoided it ever since)
“The upshot is that investors in funds with ERI may have:
An income tax liability on any undistributed profits dating back to 2009 – even though they never received the income in question;
A duty to report these profits in their tax returns, in the same way they do with actual cash distributions from their offshore reporting funds. “
Ah yes, that could be an issue. Although as long as you have the data it’s not too difficult to add to the tax return? I use an accountant, so don’t have to worry too much about whether I’m missing tax details – equalisation is another little quirk that can trip up the unwary.
Regarding costs, please can someone explain whether “transaction costs” are relevant in this comparison? For example, the following:
HSBC FTSE All-World Index Fund C (GB00BMJJJG09) OCF 0.18%
Vanguard FTSE Global All Cap Index Fund (GB00BD3RZ582) OCF 0.24%
The first has a Transaction Fee of 0.15% (to total 0.31%) but the second has a Transaction Fee of 0.03% (to total 0.27%).
Does this not make the Vanguard “cheaper”, or is this the wrong method of comparing these costs?
Are we sure Royal London Short Duration Global Index Linked Fund M (GB00BD050F05) OCF 0.25% is hedged back to sterling? I’m not sure it is.
@Adrian https://www.rlam.co.uk/Home/Intermediaries/Products/Fixed-Income/OEICs/Short-Duration-Global-Index-Linked-Fund/ “Fund overview …. Non– sterling assets will be hedged back into sterling…” BUT its the only place this is mentioned, I’ve been through the other documents relating to the fund and I have found nothing. Pretty shoddy!
@all&sundry Re: L&G Global Small Cap Index Fund (IE00BG0VVG79) OCF 0.2%
I contacted iWeb: they said “our intermediary fund provider is Cofunds/Aegon and they do not have it. If they ever do, then I can request it.” As iWeb and Halifax and Lloyds are bascially all the same I assume none of those platforms have it.
Just had a letter from my platform:
“Vanguard have changed the index that the [Vanguard Global Short-Term Bond Index Fund] tracks from the Bloomberg Barclays Global Aggregate Ex US MBS 1-5 Year Float Adjusted Index to the Bloomberg Barclays Global Aggregate Ex US MBS 1-5 Year Float Adjusted and Scaled Index. They have explained that the percentage of the previous index represented by certain types of bonds issued in China was set to rise significantly in the next 20 months. In contrast, tracking the new index will allow the fund to keep the proportion of these bonds at its current, relatively low level. Vanguard believe this gives investors the benefit of diversification while limiting risk.”
The only difference I can see is that “and Scaled”. Should I care?
I had the same correspondence (another Cavendish or Fidelity customer, perchance?) and did a bit of digging.
From what I can gather Bloomberg Barclays are expanding the index to include domestic Chinese bonds, which at market value would form 6% of the index, and hence by extension, any fund tracking the index. Vanguard objected on the basis that this would be too difficult to hedge, risky, and expensive, and therefore changed index to effectively cap these Chinese bonds at a lower proportion – about 1.5% ish if I remember rightly. Frustratingly I wasn’t able to find anything on Vanguard’s website – this came second hand, so may not be accurate.
Do I care? Not greatly, so long as the average credit rating doesn’t change (which it won’t).
I was wondering if anyone could recommend the equivalent to the World equity – developed world and emerging markets (total world) suggestions below but from a US perspective as looks like I can’t invest in any of those from here, unless I’m missing something (highly likely)?
HSBC FTSE All-World Index Fund C (GB00BMJJJG09) OCF 0.18%
Vanguard Lifestrategy 100% Equity Fund (GB00B41XG308) OCF 0.22%
Vanguard FTSE Global All Cap Index Fund (GB00BD3RZ582) OCF 0.24%
Fidelity Allocator World Fund Y (GB00B9777B62) OCF 0.25%
Vanguard FTSE All-World ETF (VWRL) OCF 0.25%
Just found out that iShares have dropped the OCFs on their UK Gilt ETFs. IGLT and IGLS are now 0.07%, and IXNG is 0.1%.
Thank you David!
Vanguard have recently added a global aggregate bond etf (VAGP) with an ocf of 0.10%
Has anyone bought any of : Amundi ETF Global Equity Multi Smart Allocation Scientific Beta ETF (SMRU) OCF 0.4%
I pretty much decided to use it as my property allocation but you can only telephone trade at AJ Bell – that caused me to worry about liquidity. Any thoughts / comments welcome. Thanks
I just came across the following ETF:
SPDR MSCI World UCITS ETF (SWLD) 0.12% TER
I have the following all world etf VWRL with charges at 0.25%. I see the new Amundi Prime PRIW all developed world etf charges only 0.05% – a considerable saving. However I can’t find a platform that deals in it. I use AJBell, HL and iWeb. Anyone bought PRIW and on what platform please?
Hello, Im new to this and have a question for you please:
If you invest £1000 in a UK large cap index fund when the FTSE All Ahare is at, say 4000, how much would your investment be worth if a year later the FTSE All Share was back to 4000? Would it still be worth £1000 or would you have made some money through dividends from the FTSE All Share companies?
Reading the Key Investor Information for HMWO, page 2 Charges section suggests a 3% entry and 3% exit fee. But then just on from that ‘No entry or exit charge is payable where shares are purchased/sold on a stock exchange. Investors need only pay any relevant broker and stock exchange fees and commissions’. Seems a little confusing? 3% in and out is a hefty whack. You’d want to be absolutely crystal clear whether you were paying it or not.
Re: above comment, have now received confirmation from HL that there is no 3% entry or exit fee payable on this ETF (not when buying through them anyway, but almost certainly not broker specific), which is the expected outcome – but better to be safe than sorry..
In my research for my minimum risk asset I see this fund from iShares –
iShares UK Gilts All Stks Idx (UK) D Acc
It has a quoted OCF 0.11% on Interactive Investor though performance looks marginally poorer than:
Vanguard UK Gov Bond Index (IE00B1S75374) OCF 0.15%
If the lower charges are correct is this performance difference down to tracking error or am I not comparing apples with apples?
Thanks in advance.
It seems that the costs for “HSBC FTSE All-World Index Fund C” are currently incorrect. According to this charges documents there is a 0.19% ongoing charge for the product costs AND a 0.25% ongoing charge for the account fee, i.e. 0.44% in total!
Hi DB, the cost doc you’ve linked to assumes you’re investing in the fund through HSBC’s Global Investment Centre platform. That’s the 0.25% account fee bit. But you could invest in the fund using a different platform and then you’d pay their account fee instead. Platform fees are covered on our broker table, and we stick to fund Ongoing Charge Fees (OCFs) for this page.
The OCF for this fund is currently listed as 0.19% in the factsheet, which is within a gnat’s whisker of the 0.18% on our page – which I do need to update soon!
@The Accumulator. Thanks for clarifying. How is one supposed to know what is a platform cost and what is not? In the document I linked both are labelled as “Ongoing Charges”. Would be good to know if there’s a definitive way to determine this, instead of as a nasty surprise a few years down the line.
Does the transaction cost (0.04%) also only apply if using the HSBC platform?
Hi – is it possible to get this updated for 2020? Appreciate your time!
@MB & @DB – this page has some detail on transaction costs:
In short, it appears you do have to add OCF to transaction cost to get the total cost.
Please can anyone advise on if there are S&P 500 index tracker funds in the UK that charge a fee of below 0.05% that can be held through and stocks and shares ISA?
I am new to investing, so unsure of the correct terms, but from watching education videos it is advised to find an index tracker fund with low expense ratio’s in the US.
I’ve looked at Vanguard and Fidelity, but they charge fees called ongoing charges and transaction costs, plus annual fees. Is this the same as an expense ratio fee, just different names here in the UK?
I am presuming you add all these fees to get your total fee amount from the investment, which will then be hard find a fund below 0.05%?
Any help for this novice investor would be greatly appreciated!
Apologies, forgot to add from my post…would a more global index fund be better to benefit from more diversification across all of the developed world’s stock markets?
Yes, a developed world or total (developed + undeveloped) world fund would offer far more diversification than putting all your eggs in a US basket. Pick one of the funds under the “World equity – developed world and emerging markets (total world)” category.
You will struggle to find funds below 0.05%, that is very low. Be happy with 0.1x%
Thanks for the feedback.
Are you saying keep the ongoing charges fee to 0.1% or the total costs for the whole fund?
I understand that investing in funds that invest overseas are affected by foreign currency rates. So if the £ drops in value, so would the fund. How does that affect your decision in investing in global funds?
This is one fund that I have been looking at – the Fidelity Index World Fund:
This is on the list above. I am presuming it is not just the lowest fee that dictates the best fund, but other factors too?
Is it worth seeking advice from an IFA about the best fund for my circumstances? Any recommendations if so please?
@John The ongoing charge fee IS the total cost for the fund. Maybe you’re talking about transaction costs and such?
If the pound drops, the value of your overseas investments is unaffected. Imagine USD:GBP rate is 1:1, you buy a unit of a fund for 100GBP (= 100 USD). Sterling then drops to half of USD. You’re still holding an asset worth 100 USD. If you sold it to a UK investor, they would have to pay you 200GBP for the unit now.
It’s different if you’re investing in a fund whose underlying assets are in GBP, rather than other currencies. For example, if you invest in a FTSE100 fund and Sterling plummets the result depends on these 2 cases:
1) If you live in the UK and use GBP you’re largely unaffected since everything that you buy (except what you import) will have cost the same before the GBP weakened against the dollar as after.
2) If you’re based outside the UK, and you don’t use GBP, if you decide to sell your shares, you now get far fewer of your host currency out of it. Therefore those shares provide less purchasing power should you sell them.
The Fidelity fund is good, but it’s developed world only: that’s less diversification. That said, I’m drip feeding into that fund over the coming months to profit on the short term. It’s my belief that undeveloped countries would be hit much harder by the virus than the undeveloped so I don’t want them dragging down shares. If if you’re horizon is long-term it shouldn’t matter: you should diversify total world.
IMHO IFA is for if you’re a millionaire or grossing 300k+ annually. Better to educate yourself than have some biased kook tell you to put money in some UK-biased fund.
Thanks again for your reply.
Yes, I talking about all the other costs including transaction costs, one off costs, platform fees, plus the ongoing charge. Would you aim to keep all these combined around 0.1% or is that a figure you aim to keep just for the ongoing charge?
Are the fees the primary indicators for you choosing a fund to invest in, or are there other indicators or variables that drive your reasoning for choosing a fund that I am not considering here?
Did you purchase your Fidelity fund through Fidelity, or another platform please?
My thinking is that if the funds can be held in a general platform in an ISA, then the ISA can be used to buy individual company stocks as well if needed.
What fund do you recommend looking at that is a total world fund and not just covering the developed world?
Lastly you mention drip feeding into the fund for the short term. What is your timeline in regards to short-term? As I was considering to open the fund and just leave the money invested, and then drip feed funds in on a monthly basis over a long-term period of 10-20 years.
I’m looking at “Fidelity Index Emerging Markets Fund P (GB00BHZK8D21) OCF” on the Fidelity website and although the ongoing charge is 0.2% as shown on this page, it says the transaction cost is 0.34%. Am I right in thinking that this should probably be removed from the list of best buys? The Vanguard Emerging Markets Stock Index Fund has a total charge of 0.24% on the other hand
Can I please ask if it is worth having just one fund to invest in, or more than one?
I have been thoroughly enjoying working through the various links and articles you have created over the years whilst I have been furloughed this last month. It is really appreciated for you to provide such thorough, honest and clear information and advice and I am sure you have set up many readers over the years by pointing them in the right direction and providing structure to their finances.
I have decided on my equity allocation to go into the Vanguard FTSE Global All Cap Index Fund (GB00BD3RZ582) OCF 0.24% (which you included above) simplicity, low tracking error were among the key factors for me.
Now before I make the step I wanted to ask if there is any disadvantage to holding just one Equity component. Aside from perhaps a lower average OCF from 2-4 funds combined to make up the global market is there any other benefit/ things I should be considering. It seems to be the case in all the example portfolios from yourself (that I have seen) that you have multiple funds making up the portions of the developed market and emerging markets (fragmented even further on multiple occasions). There doesn’t seem to be any articles that I can find from either yourself or other parties directly explaining this so would really appreciate your thoughts and guidance on this.
I have been reading up the last month on everything I can and am looking to make my first investment this week, with regular automated monthly investments from my salary going forward.
Thanks again and I look forward to hearing your thoughts.
All the best
Can I please ask, for my learning and guidance in choosing an investment fund, what guided your decision in choosing this fund over the other two funds rated as having cheaper OCF’s in the total world category by Monevator?
HSBC FTSE All-World Index Fund C (GB00BMJJJG09) OCF 0.18%
Vanguard Lifestrategy 100% Equity Fund (GB00B41XG308) OCF 0.22%
Will you be buying this fund through Vanguard Investor, or another platform?
Firstly the HSBC fund had a highly varying tracking difference between the fund and the index of 0.4% to around 1.4% if I recall (if not read yet I would read through Monevators articles of tracking error, tracking difference and how to read a fund fact sheet). The Vanguard fund I am going for was within 0.12%-0.35%, so the extra 0.05% cost per year is significantly less than the 1% you could lose per year going with the HSBC one. Also my confidence in the fund given the fact this gap was so large is undermined as there is no reasoning given.
Also the Vanguard fund I am going for holds considerably more holdings as is based on the FTSE Global All Cap vs the FTSE All World index and thus more diversified as covers not just large and mid cap but small cap as well across the world. On the negatives side it is much smaller in asset size as is newer so there are potential risks on that side but offset with the pros this for me is the strong favourite and also I expect the fund to grow in size considerably the next 5 or so years so stability should be found in that.
Regarding who through, I am likely to be going via Lloyds as already have a share dealing account and ISA there and they offer competitive rates and the regular investing automation etc that fit within my current needs.
All the best
HSBC FTSE All-world Index C OCF is now 0.13%
(“change to charges on 1 April 2020” according to prospectus via morningstar)
Thanks for the reply, and explanation.
I now see the Vanguard LifeStyle 100% has more UK weighting, which I’ve been told has caused it to underperform against other world trackers. Is this fund also based on large and mid cap?
I’ll read up them articles you mention.
I’ve just revisited and yes the UK proportion is much too large for my liking and doesn’t represent the actual worlds markets equally. Given this it’s not comparable to one specific index and so tracking error harder to track.
People often have home bias e.g. towards the UK and so is best avoided.
Thanks. One of my concerns of going with a total world fund at present is that the emerging markets may struggle more with Covid-19 as they do not have healthcare systems in place – though this too could be said for some parts of Europe. As such, they may have a negative effect on the fund.
Two very interesting BBC doc I listened to last night kind of reflect this:
I wouldn’t want to get into a back on fourth debating your selection of funds etc as I don’t think this is the medium Monevator would prefer it to be discussed. The premise of buying these globally well diversified index tracker funds is that you are accepting the concept and supported idea that we cant beat the markets and are not smarter than the markets and so do not aim to time the markets. Any act to postpone or withhold investments (as easy as it is to do) is going against that. You may time it right once or twice but over 30 years you are statistically going to get it wrong most of the time and negatively impact your investments.
Potentially yes emerging markets may suffer but these aren’t frontier markets, if you look at the breakdowns of the countries e.g China. They have been tremendously better than the UK’s hesitant government in bringing in measures to reduce the impact of COVID 19. They could face fines for concealing information delaying global knowledge or for the repeated instance of a virus from stemming from a known issue being the wet markets that could impact them. But again this is all engaged with whats going on and not abiding by the accepted behavioural habits for this passive investing.
And anyway, if the emerging markets do go down, the money you are investing is going further and buying “more”.
If you are thinking of investing in this sort of way I would encourage reading further articles from Monevator or the Maven Money podcast as they go into detail on behavioural habits and its importance. So you have the knowledge and resilience when such a market dip happens that you don’t react and sell sell sell or time the dip etc.
All the best
Thanks again for you thoughts Peter – much appreciated.
I have noticed that Dow Global titans 50 etf is available from two ETF providers in the SIPP and LISA account.The providers are lyxor(MGTU LON) and Ishares ( EXI2).The domicile of these etfs is in France and Germany .Does anyone have info or experience of French and German withholding tax in the UK SIPP?
Thank you for providing such a valuable resource.
From what I can see, Vanguard UK Investment Grade Bond Index (IE00B1S74Q32) OCF has an annual charge of 0.12% not 0.15%. Also has the advantage of zero bid/offer spread.
Vanguard FTSE All-World ETF (VWRL) OCF 0.25%
is now only 0.22%
Great piece of work you have done here
Is there a reason Vanguard FTSE Developed World UCITS ETF (VEVE/IE00BKX55T58) is not listed under “World equity – developed world only”? It has an OCF of 0.12% if I understand correctly. In particular, VEVE and HMWO are nice as they do not reinvest dividends, which helps for the self-assessment when investing outside of a wrapper (ISA/SIPP). This may be something worth noting in these listings.
Hi Matthias, it’ll only have been because VEVE was more expensive last time I updated this piece. Hope to revisit the list again very soon.
Would it be worth including an unhedged global bonds category?
For investors concerned about the future of Sterling, it seems like a legitimate passive investing class?
@TA. Impressive work. One thing you might want to highlight is how funds you put in the same category are very different in terms of performance. I know you caveat this by saying you are going totally on OCF, not tracking loss etc.
Take ABGP and VAGS in the “Total global bonds hedged to £ (government and corporate)” category. They might look similar at first glance but their performance over the last year is totally different with AGBP 2.66% and VAGS 4.66%. That drowns out the cost difference of 0.01%.
@Algernond. If you are taking a view on Sterling, then, by definition, you are not passively investing.
@ZXSpectrum – Wow! So gald I’m in VAGP(S) instead of ABGP 🙂
Is it an unwritten rule that unhedged bonds are not to be part of passive investing? If that’s the case, wouldn’t the same be so for foreign stocks?
And what about Gold? That’s in the post, but if I buy Gold, aren’t I taking a view on Sterling?
Hi all, rereading past comments, I am struck by posts between John Answorth and Peter in May, concerning the home bias of the Life Strategy funds. I would be very grateful for some opinion. I should add I invested in LS60 after finding this great resource back in 2015 and am very glad I did.
If you are putting VLS100 in there might as well put HSBC Global Strategy Adventurous at a OCF of 0.15%
Great piece of work
@OCT isn’t the OCF for this fund 0.20%? Also, VLS has a Home (UK) Bias, which does not appear to be the case for the fund you suggest?
@Squirrel – sorry of that was for me, yes I just checked 0.20%, lord knows why I have 0.17 in my costs spreadsheet. In hindsight the difference between this, mymap6 and VLS100 is that they are risk managed, so therefore not a good candidate for a truly passive portfolio. Currently the fund is 3.44% in the UK.
@Algernond. It’s not about whether you are unhedged or hedged. It’s what is meant by passive vs. active. Your passive portfolio is built to fit your long-term objectives/target/aims etc. So Gold, currency hedged or unhedged bonds etc can all be fine. It doesn’t, however, take a view on the relative cheapness or dearness of asset prices or currency bilaterals. Once you go down the route of saying “you are concerned about” Sterling weakening/bond yields being too low/tech stocks being too high (or whatever) and you to modify the allocation in some way hedge that risk you are then overlaying an active view. That’s all.
I’ll leave it there since I don’t want to damage the thread further. The real point was how different AGBP and VAGS actually are despite having similar sounding indices, similar duration etc. But they are not the same thing at all.
The Accumulator – Great work, much appreciated! Interesting that you’ve replaced the Value categories. At least for Global Value, there were a few ETFs to choose from. A sign of times, perhaps even a contrarian signal? 😉
Was just reviewing UK & Global index choices yesterday and now your mail pops up @TA – great work, and the work of art that brought me into the fold!
In the UK Large Cap Equity section, doesn’t Vanguard’s FTSE U.K. All Share Index Unit Trust (GB00B3X7QG63) get an honourable mention at OCF=0.06%? I tend to compare VG, HSBC and Fidelity annually for UK and global. For UK they are all so close on OCF%, but I find it gets very confusing once you dive into transaction costs/tracking error/performance data to try and differentiate further…so I inevitably just carry on with my ongoing picks.
Unless I have not fully understood all charges but it appears that you can get the HSBC FTSE All-World Index fund from AJ Bell with an OCF of 0.13 rather than the 0.18 you have above.. Making even cheaper.
Thanks for the update. My documentation for Vanguard Global Aggregate Bond (VAGS) and the distributing version VAGP both show an OCF 0.10%
I won’t be surprised if I have this wrong . . .
iShares have ETF versions of their Emerging Markets fund. EMIM is the accumulating ETF, IEEM is the income paying ETF. Both have a TER of 0.18%, same as the iShares Emerging Markets Equity Index Fund, but they make around 5bps from stock lending each year, which makes the iShares ETFs and OEIC cheaper than your best buy.
My preference is to stick with the big providers iShares and Vanguard, followed by Fidelity and HSBC for some of there OEICs, even if they are not the cheapest. Comstage, Amundi and L&G ETFs may work out ok, but their funds are much smaller and they don’t yet have sufficient track record to show whether their lower fees actually translate into improved performance and lower tracking error. I welcome the competition though.
This would be more complete if you included trackers for Europe, Japan and Developed Asia Pacific ex Japan.
If Accumulation is the norm then shouldn’t VWRL be changed to VWRP?
It’s a great compilation, and this and many other posts by yourself & @TI have helped me so much since I was FI awakened by this site.
This update is helping me choose the right Gold ETF; I had been considering to purchase SGLN, but now I see there are cheaper options to take note of.
Although @ZXSpectrum48k suggests that querying about what exactly is passive investing was damaging the thread, I’m not so sure that it is. I’ve been thinking to change some of my GBP hedged bonds into Gold / unhedged bonds to diversify away Sterling risk; Gold is in your list but unhedged bonds are not, which is what led me to question my understanding of what passive investing is.
Hi – just seen that SGLN is now 0.15% OCF on the iShares website.
Algernond. If you want aggregate bond trackers with a foreign currency overlay use the USD unhedged equivalents:
AGBP LN (GBP hedged Dist) -> AGGG LN (US$ Unhedged Dist). Both 0.1%
SPDR’s GLAB LN (GBP Hedged Dist) -> GLAG LN (US$ Unhedged Dist). Both 0.1%
The Vanguard VAGP/VAGS LN do not have a USD unhedged version as far as I know (this may change as they just need to add another sub-feeder). If you can access BNDX US that would be an alternative. There is also VAGU LN (US Hedged Acc) but remember the only exposure you get with that is short GBP/USD overlay.
AGGG is the one I’ve been looking at.. Now just got to decide the asset allocation and stick with it.
@ ZX – good point about AGBP vs VAGS. I have had to caveat emptor the list around OCF for the sake of practicality but I could delve deeper into these differences in a standalone post and then link back to it. I’ll put that on the list.
@ Algernond – I did think about putting in unhedged bonds, but I’ve tried to stick consistently to the message that the primary role of bonds is lowering volatility and the currency markets are a casino. I wonder how popular that sub-asset class would be now if it wasn’t for the battering sterling has taken since the referendum? On that tip…
@ Don – haha. Yes, I’d personally be very happy if this was the moment value proved the doubters wrong. I’ve decided to cover off factors in the multi-factor sub-asset class – the individual factors haven’t ever gained much traction with Monevator readers while lots of people are mad for income investing.
@ Buthy, DJeezy, Onedrew, Algernond – all great spots. Have updated the piece. Thank heavens for the wisdom of the crowds.
@ Nearlyrich – you’re a pedant after my own heart. I’ve deliberately not updated because pedants shouldn’t prosper 😛
Also everyone knows this ETF as VWRL and that’s how Vanguard market it. I’ll probably update this later under the cover of darkness because the cognitive dissonance is doing my head in.
@ Naeclue – the stock lending gain should be showing up in the OCF, no? I’m going from memory so do correct me if I’m wrong.
Re: extra categories. The Investor loves your thinking, you total slave driver.
I realise this doesn’t neatly fit into one of your categories as it isn’t global, but for one of my low risk and low volatility options I’ve plumped for
iShares USD TIPS 0-5 Yr ETF GBP Hdg Dist (TI5G) which has a TER of 0.12%.
And also iShares Sterling Corporate Bond 0-5Yr UCITS ETF (IS15) with a TER of 0.2% as a less volatile and interest rate sensitive alternative to SLXX.
But my bond holdings are currently looking like a mutated version of the Gone Fishin’ Portfolio, which has 10% each in short-dated Investment Grade corp bonds, High Yield (mine are a mix of EM and Corp all hedged back to GBP) and TIPS.
Shock horror – no long or intermediate gilts of any type! Although I do have some short dated gilts in one of my near cash-like work pension funds.
And my 5% gold is in the HANetf Royal Mint ETF, where the underlying physical is buried in a Royal Mint vault in Wales, even though the TER is a teensy bit higher at 0.22%.
If something is “half as cheap” does it cost more, or less? 😉
Hi TA – great work. Thanks.
I’m now left with the dilemma of whether to glide path into new kid on the block EM ComStage MSCI Emerging Markets ETF or stick to the tried and trusted with iShares Core MSCI EM? Eventually for about £40 or 3 bottles of wine a year.
The Amundi Prime Global ETF (PRIW) looks a great OCF, but not sure about the Solactive index. Anybody know anything about it? Or where I can compare indices?
This really is a superb piece of work. Somewhat related to the comment thread above and the link…..I wanted last week to utilise the annual £12k CGT exemption, so I sold sufficient ITPS (Ishares $TIPS) and bought sufficient TIPG (Luxor $TIPS) to lock it in. Both track the same asset class and both appear to be highly correlated. It seems a successful way to bypass the 30 day CGT buy back rule. I accept they may not be 100% correlated. Anyway I mention it as they are the two $TIPS ETF’s I’ve used. I agree it’s active not passive bien sur. I am also open to being told that was sub-optimal for some reason. Thanks again for your efforts here.
@Brod. The Solactive index (SDMLMCUN) is a cheap clone of the MSCI World Net Total Return Index (NDDUWI). Over the last 18 months or so, the difference in performance of the two indices is 0.01%. Don’t spend it all at once.
HMWO LN (0.15% charge, not mentioned above but well-used as a developed world equity tracker) and LCWL LN (0.12% charge, mentioned above) both use the MSCI. Since PRIW was launched, HWMO has outperformed it by 0.24%, despite a 0.1% higher fee. LCWL has underperformed it by 0.18%.
It’s a good example that when fees are 0.05% or 0.15%, you need to start to focus on other risk factors. Tracking error, bid/offer, stock lending, fund administrator, or just which one makes you feel more warm and fuzzy. The fee difference is just noise.
@ZXSpectrum48k: I switched to VAGP from AGBP once iWeb made it available (though I have failed to persuade them to add VAGS) and have been pleased to see the improved results. I have since been wondering whether iShares have greater GBPUSD hedging costs than Vanguard which could account for the performance differential between AGBP and VAGP.
In 2016 I swapped VUSA for IGUS (S&P 500 unhedged distributing for £hedged accumulating) when the £ dropped below $1.2 and reversed when it hit $1.3+. I did the same again this year under the same circumstances this time using the newer GSPX (S&P 500 £hedged distributing). I saw that there was next to no tracking error with IGUS, but no dividend, and around 1.5% tracking error for IGUS. Fortunately the gain outweighed the hedging costs by a useful margin on both occasions and I will probably follow the same (timing?) course again.
@OneDrew. I would very much doubt that it’s FX hedging costs. That’s a few bps at most.
AGBP and VAGS have different indices. AGBP is against the Barclays Global Aggregate Bond index, while VAGS is against the Barclays Global Aggregate (Float and Scaled) Bond index. Sounds similar? Yes but the float and scaling criterion effectively reduces the amount of eligible corporate debt (illiquid) and also some Government debt (since it’s held by central banks).
VAGS ends up with more US Govt debt, more US Agency debt, less corporate debt and less in some government bond markets (JGBs as an example). End result is that it’s outperformed by a considerable margin given the specific conditions in the last year or so.
@ZX – thanks for that. Unless I can be guaranteed the 0.24% every year, looks like a crap shoot to me. I already hold SWLD in my SIPP and also FIIAGM in my ISA. Not quite sure why or how that happened.
I do have this years glide-path rebalance to invest in Dev World Equities. I’ll stick to SWLD for my SIPP otherwise I’ll end up with dozens of small holdings and when I look at my portfolio IT WON”T LOOK NEAT AND TIDY!!!
@TA, stock lending return is not included in the TER/OCF calculation. You see this most in ETFs with very high stock lending returns. For example, iShares MSCI AC Far East ex-Japan Small Cap UCITS ETF currently has reported stock lending return about the same as TER (0.74%). Looking at the 2019 accounts (page 14) shows the tracking difference to be +0.16%, ie they beat the index despite a TER of 0.74%. The accounts state “The tracking difference is a result of securities lending revenue.”
Thanks for the hard work TA. This is my first port of call when I change into my super-asset allocator mode and decide to invest more pennies.
@Brod. Actually, it isn’t a crapshoot. All those funds, HMWO, LCLW, PRIP are outperforming the index. In fact, HMWO has outperformed the most and by a consistent 25-40bp/annum over the last 5 years or so.
They all track ‘net’ indices: the index returns are net of taxes. Their local entities, however, don’t always pay the witholding taxes that the index assumes they will, so they can easily outperform. HMWO outperforms the most because HSBC has more local entities. This ‘windfall’ vs. the net index means they can charge a low fee but take far more out. They pass some of the benefit on to the client (who thinks they are magically outperforming owning a passive tracker) and they pocket the rest. It’s a good example of shadow indexing. You replicate against MSCI World index but state your returns vs. MSCI World Net index.
@ZX – interesting. So, all other things being equal, I’d be better off in HMWO as it should consistently have the tax advantage and therefore consistently outperform? Again, all other things being equal.
@Brod, iShares SWDA has beaten HMWO over 5 years (just!) despite having a TER of 0.20%. Again iShares make a return on stock lending which helps (currently reporting 0.03%). Efficiency of running the fund is very important, which is why I would prefer to see a longer track record of performance for the cheaper funds before I commit any money to them. Amundi Prime Global ETF (PRIW) for instance has only be going 18 months.
L&G have a very good track record of running index funds and well worth a look IMHO, but their ETFs are quite new and AFAIK not run by the same team, so again worth waiting to see how they do.
Vanguard have recently cut their fee on the FTSE developed world fund VEVE to 0.12%. That is probably the one I would go for if I wanted a developed world fund. The FTSE index is broader, picking up more small caps than MSCI and you can trust Vanguard to be efficient and keep fees low over the long term.
Swap based ETFs can be really efficient, for example Xtracker XSPU is a swap based S&P 500 ETF that manages to avoid US dividend withholding taxes, unlike replicating S&P 500 ETFs, so manages to beat the replicating ETFs even with a relatively high (for S&P trackers) TER of 0.15%. Personally though I would not want to put money into a swap based ETF.
@Naeclue. That’s odd since for 30Sep15 to 29Sep20 I’m seeing SWDA LN at a total return of 94.47% (14.22%/annualized) and HMWO LN at 95.87% (14.38%/annualized). Both beat the index (93.10%). I’m just extracting those numbers direct from the Bloomberg terminal but those are normally accurate (better be for $24k/annum). Obviously one is acc and dist so the compounding of the dist may be the difference.
@Brod. Some funds will have better capabilities than others in different areas. Some are better at stock lending say. Given their global network, tax arb is something HSBC is quite good at … just ask the Russians!
VAGS is today available on iWeb! It wasn’t earlier this week so thanks to whoever made it happen. Blue Whale next?
“That’s odd since for 30Sep15 to 29Sep20 I’m seeing SWDA LN at a total return of 94.47% (14.22%/annualized) and HMWO LN at 95.87% (14.38%/annualized).”
Well on Bloomberg I am seeing 97.49% (14.58%) for SWDA and 98.79% (14.73%) for HMWO. Morningstar are giving 14.60% for SWDA and 14.75% for HMWO, which is consistent. Trustnet are giving 98.6% for SWDA and 99.7% for HMWO. So all say HMWO is ahead, but Hargreaves Lansdown is giving 97.62% for SWDA and only 97.00% for HMWO.
The factsheets from iShares/HSBC web sites give 5 year NAV USD performance to 31/08 of 64.97% (10.53%) for SWDA and 64.82% (10.51%) for HMWO, putting SWDA slightly ahead.
Make of that lot what you will!
@TA Great job as ever. The irritating thing is that one can’t just pick and choose from all these as each platform varies in what it offers. I’m with the UK’s Largest Investment Platform (TM) and I know for a fact that they don’t have several of the listed ETFs.
@Don You beat me to it. 🙂 If my portfolio wasn’t already 30% small cap value, I’d be piling in…
@ Naeclue – thanks for following up on that. Re: OCFs – I personally use them to establish a shortlist (oranges vs oranges, ideally) and then check performance to see whether one or two nudge consistently ahead, or whether anything odd is going on. Ideally I’ll plot them against the index too but I don’t have a Bloomberg terminal so cobble it together using public sources. I find Trustnet usable but it gives me the willies that the sources generally differ and I’ve uncovered a clear cut case of unreliability with Trustnet in the past.
I’d want to compare at least 3 years of data and ideally more like 5, so like you I prefer early adopters to road test new products for me. Unlike ZX, I’m not agile enough to respond to market changes that favours a particular product for a year or so, I’m looking to be in the right ballpark rather than top of the league. I sense you have a large portfolio which probably makes it profitable for you to be highly sensitive to cost differentials?
Interesting that you pick out L&G as reliable – I’ll need to take a closer look. Generally I’ve found that Vanguard trackers have pretty low tracking difference but I haven’t surveyed the field systematically.
I’m curious as to why you don’t like swap-based ETFs but sound sanguine about stock-lending?
None of the above is meant to discount the importance of other factors e.g. the composition of the index.
@ C-Strong – agreed, I try to avoid listing products that aren’t typically available or are platform exclusives but no-one stocks everything. Where do you go for your small cap value exposure?
@TA it is costly moving between funds so I will not do it unless I can see a clear advantage, but I am moving positions held outside tax shelters to our SIPPS and ISAS using income generated in the tax shelters and using the annual ISA allowance. So some changes between providers when that happens.
Regarding swap based ETFs and stock lending, there is a significant difference in the level of counterparty risk between the 2 activities. I also dislike the lack of transparency with swap based ETFs and distrust black box “trust us, we know what we are doing” use of my money.
There was an interesting article in the FT yesterday about Blackrock launching a swap based S&P 500 ETF to save tax, despite being vocally against them for years. Google “BlackRock performs volte-face with swap-based equity ETF”. Or try this link https://www.ft.com/content/6600bd7f-5433-47d3-a2df-04411e6de75b
@TA, getting good historical data is key to any analysis, as is comparing oranges to oranges. I consider the Key Investor Information Documents (kiid) to be reliable as they are regulated and the historic performance comes from audited information. Still not without difficulty though as ETFs report past performance in the ETF base currency, usually dollars and OEICs report in pounds!
As an example for developed world trackers, I just looked at the kiids for the HSBC ETF HMWO, iShares ETF SWDA and the Fidelity OEIC (class P accumulating). They all track MSCI World so oranges are being compared. I used Bank of England spot rates to convert the Fidelity returns to dollars. The 5 year performance to end 2019 compounds up to 52.6% for iShares, 52.1% for HSBC and 51.6% for Fidelity. You can also get comparative figures for tracking errors by taking the standard deviation of each years tracking difference. That works out as 0.1 for iShares, 0.5 for HSBC and 0.6 for Fidelity.
For me that makes iShares the winner, but it becomes trickier to decide when you see outperformance, but with higher tracking error, which sometimes happens.
I would still probably choose Vanguard’s VEVE (or the accumulating version VHVE if you can get it) for a developed world tracker as it is more diversified than SWDA, including more small caps and South Korean shares. By a fluke, the 5 year performance to end 2019 comes out identical to that of iShares SWDA, as does the tracking error.
There isn’t a global SCV ETF so I have 10% each in these:
SPDR MSCI USA Small Cap Value Weighted UCITS ETF (USSC)
SPDR MSCI Europe Small Cap Value Weighted UCITS ETF (EUSV)
WisdomTree Emerging Markets SmallCap Dividend UCITS ETF (DGSE)
The last obviously isn’t technically a value fund, but it has P/B of 1.0, P/E of 10 and P/CF of 3.1, so good value “credentials”.
@ Naeclue – thank you for taking the time to walkthrough your process. That’s very helpful. From [unreliable] memory when the synthetic ETF scare broke several years ago, iShares had very few synthetic ETFs in the range so could loudly trumpet their physical credentials. DB and the French banks had brochures full of synthetics and had to scramble to reinvent themselves. I imagine that Blackrock think the fuss has died down now?
@ C-Strong – well played, and what a shame you haven’t been rewarded (yet) for your efforts. I use FSWD to gain some exposure to value, size, quality and momentum. UK small value through ASL (eek!) and some global small value through a DFA loophole that existed for a short time (could invest without an advisor) but has since been closed. One day it will all prove worth it. One day…
@TA LOL yeah, let’s reconvene in 10 years and see how we did…
Great piece of work, I did some detailed research looking to cover the Canadian market a few years back, the iShares product was more expensive than rival ETFs but the performance was markedly better…. yes I did a very careful comparison, but the tracking errors were negative and far larger than the difference in OCF.
The leading providers eg Vanguard, iShars, State Street etc do seem to do the job very efficiently.
Vanguard FTSE Developed World ETF (VHVG) OCF 0.12% as far as I know is hedged to USD and doesn’t seem to be available from Vanguard which is why I went with VEVE (distributing). I’ll be annoyed if an Acc version was/is available because that is what I actually wanted. Can anybody confirm this?
@Chris. I’m not sure what you are asking since VHVG (dist) and VEVE (acc) are essentially the same. Both Vanguard FTSE Developed World UCITS ETFs. Same index ticker TAWNT04U. Same total return (ok 1bp difference but that could be rounding). Both are FX unhedged and quoted in USD base currency. VHVG LN and VEVE LN are the GBP share classes, while VHVE LN and VDEV LN are the USD share classes. All four on the LSE.
Cavendish not offering anymore ISA and SIPP after sale was agreed with Fidelity this weekend!
Puzzled on what is the cheaper provider now where we can access all the above low-cost index trackers??
Chris, VHVG is available to trade but it only launched a year ago.
In a rare misstep by ZX, it’s VHVG that’s accumulating and VEVE that distributes, like you say.
Google the ISIN to track down the factsheet: IE00BK5BQV03
@ Marc – thank you for the tip off.
There’s a list of alternatives here, though none as good as Cavendish for small portfolios:
Close Brothers are theoretically as cheap but they don’t make it clear what funds they offer – at face value it doesn’t look like they offer a wide selection but I’ll need to dig deeper into it.
I think if I was starting out now, I’d probably go with Vanguard and think about diversifying later once I hit the threshold where a flat fee broker was cheaper.
HSBC are a slightly more expensive alternative but again like Vanguard restrict the range to their own products.
After that, AJ Bell Youinvest, Fidelity and Charles Stanley occupy similar ground depending on your trading habits.
Algernond: Could SGLO be what you are looking for? Its huge, global government, unhedged and only slightly pricey at OCF .20%. It looks like a sweet spot between VAGP and IBTM and rose nicely on March 23. Just a thought.
I opened a Vanguard SIPP on behalf of a retired relative to put £2880 per year in. It is cheap but has some unusual limitations. For example, it only offers income paying versions of the ETFs and accumulating versions of the funds. There is no automatic ETF dividend reinvestment option that I can find either, although manual reinvestment is free. There is an option to pay fees via direct debit, instead of from the SIPP, which will be good for some people.
No drawdown options yet, but these have been promised to be free of fees when they are introduced.
Thank you for updating the list. Is there a site somewhere that tells you for each fund/ETF which platforms carry them ?
I realized I can search on some providers such as AJBell or Fidelity but not on every site.
Hi Marc, I’ve not come across a site like that. FWIW, I’ve tended to choose my platform first and make sure that it (or my next best choice) has the right funds (or some close alternatives).
@ The Accumulator, C-Strong – Why not just go for VVAL? It looks pretty small-ish to me.
Hi thanks for all the info on ETFs I was wondering if there are any for the S&P small cap USA ? cheers Tommy
Thanks for this updated list. Is there an obvious difference between accumulating and distributing ETFs? I’m looking to invest for retirement (>15-20yrs) so would accumulating make more sense? Not sure if hedging, taxes make a difference long term with either one.
Something I was wondering about the Gold ETCs… All those providers (Invesco, iShares, Wisdom Tree) say that real gold is allocated. Sounds good. But is there anyway to tell if they are engaging in ‘fractional banking’? My fear is that if there is a run on Gold from governements due to a new impending Gold standard implementation, then I wouldn’t be able to sell at the actual spot price, because the ETC provider would only really have a fraction of the gold they’ve allocated.
@ Will – tax treatment is the same.
@ Algernond – check this out: https://www.their.tube/
Thanks @Accumulator – I think I fit 4/6 of those descriptions.
Anyway, I’ll buy some Gold coins just in case..
This is an invaluable regular exercise, many thanks.
However, the SRI ETFs you list probably wouldn’t pass muster under the word ‘ESG’ which you use synonymously. For instance, the HSBC etf you refer to includes British American Tobacco inter al within its portfolio. Most ESG investors absolutely would not want to invest in a tobacco business. I think this section needs expanding. Blackstone now include ‘enhanced ESG’ etfs, which exclude ‘sin’ businesses for instance – and there are a plethora of others. I appreciate ethical filters can appear arbitrary/personal, however the flood of money going into this type of investment, and the interest in it amongst your younger readers, means this table is not representative.
@Jonathan — Yes, it’s a pretty intractable minefield. 😐 This was our last take on the subject, but we will probably update again soon:
I am looking for an All World Fund and have been looking into
HSBC FTSE All-World Index Fund C OCF 0.13%
Vanguard FTSE All-World ETF (VWRL) OCF 0.22%
The HSBC fund seems to track the FTSE All World better at present (using the Trustnet portfolio tool) within the last year.
However I can see VWRL holds 3470 of 3973 constituents from the index compared to HSBC which holds 3056 of 3973 constituents.
This may explain the lower cost and marginally better performance.
It seems that Vanguard is trying to have full physical replication of the index whereas, HSBC has gone down the route of a hybrid of partial replication and optimisation of the tracker.
I wonder if there is anything much in the difference?? I think not personally.
I suppose the other question is HSBC vs Vanguard as a company but again I think both are big reputable financial behemoths which shouldn’t be an issue.
I am leaning towards the HSBC FTSE All World for now.
Would appreciate some thoughts from the hive mind!
For Commodities, I’d been put off the ETCs from reading the Monevator articles on them.
There’s an interesting ETF from VanEck though (ticker: HAP) which is Commodity / Resource equities at a not too bad TER (0.5%)
(noticed it when I purchased their global mining ETF)
To my mind the significant difference between the two is that one is an OEIC and one an ETF and the impact that platform charges on your chosen platform will have as a consequence.
For regular monthly investments then a “free to trade” perentage based platform would favour the HSBC option. Even on HL at 0.45% that still only comes out at 0.58%.
On the other hand for a £50k or £100k long term lump sum invested on a fixed fee platform the ETF looks a better bet at say £10 to trade and capped holding fees of £45.
Horses for Courses as is normally the way.
I’m new to this site, and find the advice absolutely invaluable. Being a complete auto-didact when it comes to investing, I have learnt so much from this site. I am a big fan of passive investing as well, however, some reasearch into passive funds vs ETFs has left me dubious.
For instance, I hold a HSBC fund on HL – HSBC FTSE 250 INDEX CLASS S – INCOME, with an OCF of 0.07%. I also hold an ETF on FreeTrade – VMID which tracks the same FTSE 250 index at an OCF of 0.10%. Holding the HSBC one on HL makes it 0.45%+0.07% = 0.52% charges, which tips the balance in VMID’s favour. But the fund has performed better than the ETF has, despite the fact that they both have nearly-identical holdings (until very recently where the fund added a different one right at the top). So, for the extra charges, I get a better return too. I did similar comparisons with FTSE 100 funds, and FTSE 100 trackers, and the returns were better, even if marginally. So this has me doubting my faith in passive investing, and if funds are still “actively” managed even though they are a passive index tracker fund?. Any thoughts/experiences on similar comparisons?
Does anybody know of any Nasdaq 100 index funds that are funds (not ETFs). I’m aware of a few good ETFs but can’t see an equivalent fund.
Given so many types listed here it would be good to have a list of the cheapest US only index trackers
Morning Star lists Institutional Acc and Inc versions of the HSBC FTSE All-World Index fund with an OCF of 0.04%. I can’t find the accumulation version available to buy, but the income variant is apparently available on II. Can anyone enlighten me please?
Any anyone explain the difference between VHVG and VEVE?
Hi Loop, VHVG is an accumulating version of the fund (dividends are automatically reinvested) while VEVE distributes income (dividends are paid out). This piece explains more:
The “total world” list is missing SSAC (iShares MSCI ACWI Accumulating ETF) which has an 0.2% OCF.
So what is the cheapest all-world (or developed-world) ETF for long term investment? Specifically a Fidelity SIPP because of the capped £45 annual platform fee.
PRIW looks the obvious choice, but PRIW only pays dividends once a year, so dividend drag effectively increases the cost by about 0.1%. An accumulating ETF would be preferable.
PRIW, LCWL etc. are also based in Luxembourg, and so pay an extra 0.15% withholding tax on U.S. dividends. U.S. is 66% of developed world market cap. This works about at another 0.1% increase in costs.
So it looks like LGGG would actually be the cheapest for developed-world and SSAC the cheapest for all-world. Does that sound right? LGGG is tiny though, and I haven’t seen it mentioned much. Why isn’t it more popular? SSAC looks more popular and has a low spread. I’m not convinced that paying double the fees (0.1% vs 0.2%) is worth it – EM is only ~10% of global market cap, so it would have to outperform DM by 1% every year just to break even (1% being ten times the 0.1% fee difference).
@Chris B: No need to be such a penny pincher. Choose 1 and go with it. Find a new one and funnel new money to that instead. No need to go all in depth. According to Morningstar both LGGG and SSAC underperform PRIW in the limited life of each
Focus on making more $$ to throw towards whichever fund you go with
@Mike. I get what you are saying, but saving £500 a year on fees by switching platform and fund, over 40 years that will compound to £106k (assuming historical 7% growth, not accounting for inflation which would push that figure higher).
Or £170k if you claim higher rate tax relief. And given that it only takes a couple of hours to research the options, do a comparison and initiate a switch, and that I personally find it interesting, makes it worth doing. Of course, career progression is also worth doing. But you can do both!
Also, underperformance is not an important metric for index trackers. An index tracker is supposed to track an index. If it fails to do that accurately, but happens to do better or worse than the index in some years, it doesn’t mean that it’s really better, because tracking error is random. It might outperform the index next year, or it might underperform, who knows.
Maybe. The one thing we do know is 0.05% is better than 0.2% and so far the performance doesn’t show otherwise
There’s an accumulating version of PRIW with the ticker PRWU. Which is good, as it will have no dividend drag, and no FX fees on dividends. Unfortunately it doesn’t seem to be as widely available yet. And, being in Luxembourg, it still gets hit with 30% withholding tax on US share dividends as described in the Monevator Lyxor article https://monevator.com/lyxor-core-etfs-very-low-cost-but-beware-some-wrinkles/#comment-900885 – which will push the cost above LGGG’s 0.1%.
@The Accumulator – thanks for this article, very useful. Echoing a previous comment, as accumulation is the default, when you update can you please change PRIW=PRWU, VWRL=VWRP. And add SSAC to total world…
@ Chris B – thank you for your contributions – which I missed at the time. I’ve only just seen them now unfortunately – some kind of SNAFU with the comments notification system. Either that or I’ve been in a coma. Anyway, just wanted to let you know that your efforts to improve the list are appreciated.
The Fidelity Allocator World Fund looks attractively priced as a global index fund which incorporates small caps and REITs, but I’m concerned that it’s a little overweight the USA and real estate. Does anyone use and recommend it? For now, I think I’ll stick with the HSBC Index Fund C.
great homework, guys – extremely useful for new investors and a good update for the rest of us. my only comment is that I think the UK bias of lifestrategy funds should be highlighted in the listings.
This a great list – thank you for putting it together!
Could I make a suggestion for another option (I hope that’s OK!) for the responsible investing category? The L&G Future World ESG Developed Index Fund Class C (ISIN GB00BMFXWS95) recently reduced the ongoing fee to 0.15%, making it cheaper than two of the funds listed.
The more expensive Class I, (ISIN GB00BYWQWW93) also reduced its ongoing fee to 0.2%, making it comparable with the the Vanguard ESG Developed fund on the list, and I personally think as far as ESG index funds go, is superior to the included Vanguard fund – although I realise the point here is more about cost rather than the benefits/drawbacks of different exclusion criteria!
Very helpful article – thank you.
Just wondering if there any reason you list the $ version of the Vanguard FTSE All World ETF (VWRP) and not the GBP one (VWRL) ?
As a newbee I’m wondering if i’m missing something.
@ Isaac – thank you very much for the suggestion! I’ll check it out when I get a mo. Can I ask which platform you invest in it with? I’ve found that some L&G funds don’t have the widest distribution.
Also, just because I’m curious, what is it you prefer about it re: ESG criteria?
@ Steve – I listed VWRP because it’s the accumulating version of the fund. You’re exposed to the same currency risk with either fund. It’s possible that you could pay marginally higher currency conversion fees for VWRP if your platform charges an uncompetitive rate to convert your pounds when you buy the ETF priced in dollars.
VWRP is priced in GBP not USD https://www.londonstockexchange.com/stock/VWRP/vanguard/company-page “Price (GBP)”
The only difference between VWRL and VWRP is that VWRL pays out dividends. Both use USD as the base currency, and both are traded on the London Stock Exchange priced in GBP. For VWRL, dividends will be paid in USD and converted to GBP by your broker, who will charge an FX fee. If you would just reinvest the dividends anyway then VWRP is the more efficient choice.
Hi Accumulator (and Investor),
Excellent blog, I’m a long term reader but first time commenter.
Any reason other than OCF that the iShares UK Gilts All Stocks Index Fund (GB00BPFJDD09) has dropped out of the intermediate duration UK Gov bonds best picks?
I’m thinking with its larger size and order of magnitude lower transaction costs it should compare favourably with the two index funds which make the table?
Excellent work Chris B. Thank you for the correction. I got mixed up with VWRA (same ETF trading in USD)
OK, so VWRL and VWRP:
Underlying currency – every foreign currency that it’s underlying holdings are valued in (these are your currency risk exposures vs GBP)
Trading currency – GBP (the currency ETF trades in on exchange) – no need for broker to convert your pounds to place a trade
Base currency – USD (the currency in which an ETF distributes income) – FX conversion charges by brokers ahoy. Except VWRP is accumulating so will automatically reinvest dividends for you. No distribution at broker level.
I hold the Class C L&G ESG Future World index fund on HL (it’s with HL because it’s in my Lifetime ISA and there aren’t many options for Lifetime ISAs, as you’ll know…)
I’ve just checked and the Class I version is available on most of the big providers: Fidelity, iWeb/Lloyds, AJ Bell, Interactive Investor etc.
The reason I prefer this fund to the Vanguard ESG fund is because the Vanguard fund excludes companies involved with non-renewable energy – but the climate transition cannot happen without these companies on board! Whereas L&G instead underweight rather than exclude, so retains its position as a shareholder and engages with the companies accordingly.
@ Isaac – Thank you for taking the time. That puts my mind at rest about distribution.
Re: contrasting positions on exclusions. That’s interesting. It’s a reminder that change often requires advocates to split into moderates and hardliners. Moderates to engage and cajole foot-draggers. Hardliners to scare the bejesus out of foot-draggers – so they actually engage with the moderates.
@ Stevey Bee – Lovely to hear you’re enjoying the blog 🙂
iShares say their UK Gilts All Stocks Index Fund D has an OCF of 0.11%. Marginally worse than the funds I’ve kept in the table.
There is an H Class version with OCF of 0.1% but I think that’s less widely available than the D Class.
Personally, I base my final decision on a broader range of criteria beyond OCF alone.
This piece may help explain:
N.B. the fund comparison part is due an update.
Re: ESG, I must admit I don’t fully walk the walk – my ISA is still mainly holding the HSBC All-World fund. This is partly because I don’t want to risk selling on a day when the markets are up (for example) 3% down, only for the switch to complete when the markets are 3% up. I’ve noticed this has actually happened on more than one occasion over the last few months… :/
@ The Accumulator
Thanks, replying to all these comments must be like a full time job!
For anyone looking for a one-stop shop ESG option, Vanguard ESG Global All Cap UCITS ETF (V3AB) could be a decent choice:
Has just short of 6,000 holdings and follows the FTSE Global All Cap Choice index tracking large, mid and small caps, including about 8% emerging markets. It ticks nearly as many ESG/SRI boxes as SUSW which has less than 400 holdings.
The ETF is only just over a year old so not much history and fund size can’t compete with the bigger boys. Charges of 0.24% also can’t compete with LGGG’s 0.10% but that’s probably the cost of wider coverage.
Overall I like the look of it but one concern might be the low trading volumes. I’d be a long term buy and holder (and infrequent purchaser) though, so maybe not a problem:
Does anybody hold this ETF?
@ Norman – sorry I missed your comment. Thanks for this. I’ve added it to the list.
Personally I don’t worry much about fund size unless it’s abnormally small after a year, or trading volume unless the spread is ridiculously high. Even then the spread would only matter to me if I traded often.
justETF cite a fund size of £100 million as being viable and V3AB is beyond that threshold.
@TA Thanks for the reply and comments on trading volume and fund size. I somehow missed the justETF page on the latter so cheers for posting the link.
@ The Accumulator
It’s great that you’ve changed to total costs, this makes much more sense to me now. I spent ages earlier in the year trying to work out why you were ignoring transaction costs!
Are transaction costs meaningfully calculated yet? There has been a lot of criticism of the “arrival cost” method included in it, which can produce a negative value for “transaction cost” (eg at the moment, I look up the iShares FTSE 100 ETF on the Fidelity site, and find an ongoing charge of 0.07%, and a transaction cost of “-0.31%”. I suspect that is something that happened recently over some period (I can’t see when), but would not happen typically.
Some firms are saying a change in method from January 2023 will at least make this less common. But until then, do we know if there hasn’t been a similar partial effect in some funds/ETFs figures – in which case, comparing them including transaction costs would not be meaningful?
@ Barney – A lot of the criticism has come from the industry who seemed happier not revealing any of these costs until forced to by the regulators. Even now, many industry players are not applying the rules as they were intended and we’re seeing weird results: namely negative transaction costs, as you point out.
The FCA say that you should ignore negative transaction costs and, from what I can tell, the reforms are designed to cancel out negative results.
So I’ve treated negative transaction costs as zero. In other words, I didn’t subtract any negative transaction costs when calculating the TCO.
Now I’ve read more about it, I’m suspicious of firms who are routinely producing negative transaction cost figures.
So for the next update, I think I’ll split out the OCF and the transaction costs. It then seems reasonable to me to treat any firm that is showing negative transaction costs across the board as an unreliable and not a super efficient fund provider firing magic bullets at fees.
These (new?) Amundi funds, quite a few like PRWU, PRAM, etc seem to be listed in USD.
Are they hedged? Are they subject to broker fx fees?
Hello and thank you for this excellent resource (among many others on this site). A question about the transaction fees though. When I look at Morningstar for the FTSE All Share tracker category, under “Investment Fees (estimated)” it shows the Vanguard fund has 0.06% OCF and a 0.06% AMC, no transaction fees. Whereas the Fidelity P fund has the same OCF and AMC, but with a 0.03% transaction fee. Which is not what you report above – am I misreading something? Does your list include AMC charges?
Gah, there’s a 0.01% transaction fee on the Vanguard fund I meant. But in any case it’s still less, not more, than the Fidelity fund.
@ Meany – Being listed in USD is fine. Every fund in those categories is subject to the currency fluctuations of the underlying holdings. This piece explains more:
Not hedged, we don’t think hedging equities is a good idea:
Here’s the lowdown on FX fees:
@ Michaelp – AMC is included in OCF. It’s not additive. AMC is a very old school method of reporting management costs that isn’t as rigorous as OCF. OCF supersedes AMC.
Transaction fees tend to fluctuate a bit from period to period. Vanguard are currently reporting 0.01% transaction costs for their FTSE All-Share tracker, so I’d assume that’s correct for now. Once you’re choosing between competitive funds like these, a few hundredths of a percent isn’t going to make much difference.