Some good reads from around the Web.

I have to use this week’s Saturday morning piece to point readers to an update to our post about Vanguard funds and Interactive Investor.

The plot thickened almost as soon as we posted that article. Initially prompted by Monevator readers’ comments, it was soon fueling even more confusion among others.

Vanguard funds that were seemingly available on Interactive Investor’s systems – and confirmed as such by staff – turned out to be part of a limited test program, not yet permanent additions to the iii stable. Please read the updated intro to the article for more on what this means.

It’s a pretty frustrating state of affairs.

I won’t go into the specifics of this SNAFU much further, since we’ve subsequently been in discussion with iii staff, who I’m pleased to say have responded with some clarity on becoming aware of the befuddlement their pilot program seems to have caused at least some customers.

But I would like to point out that it’s 2012, and no service provider can rest on its laurels.

The time is long gone when the typical investor checked his share prices in the FT on the train back to Basingstoke before joining his broker or financial adviser for a few G&Ts at the golf club.

Active investors are online, they are communicating with each other, and word gets around fast.

Yesterday we saw the IPO of Facebook, just one company revolutionising the world by capitalising on the power and appeal of community.

Blogs like Monevator have sizable communities, too – we’ve welcomed over one million unique visitors to this site since 2009. They have left thousands of comments, but more importantly they have spread links to our content across even larger discussion forums, such as The Motley Fool, Stockopedia and ADVFN. We, in turn, have spread links posted to discussions elsewhere.

This is the modern landscape that financial service providers will thrive or die in, and it’s best for everyone if the information that spreads is clear and accurate.

Consumers are wising up, sharing knowledge, and growing smarter. Tracker funds are now outselling actively managed ones. Banks are on the hook for billions in compensation partly as a result of grassroots campaigns that began on the Internet. It’s truly a hive of investment activity, as alluded to by the name of one new Web-based service, Investor Bee.

The direction of travel is clear. In my opinion, the future of financial advice and services is clearly online. Online is no longer a place for afterthoughts – it’s at the heart of how we’ll save, invest, and plan for our retirement.

I can only apologise to any readers who were excited by our post on Thursday and who are now disappointed, although I’m not sure what else we could have done, given we’d had confirmation from telephone staff that the funds were available to trade.

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Update 18 May 2012: Since this post was written, we have been informed by Interactive Investor that Vanguard funds are NO longer available on its platform. We are told that the company is piloting seven Vanguard funds to ensure its systems work, but will be removing them at the end of testing. We’re advised to inform you that “they will be not be available until further notice.”

We at Monevator are sorry for contributing to this confusion, which was prompted by the fact that readers kept telling us that the funds WERE available – reasonably enough, because they saw them there – and asked us what we thought.

Sure enough, we were informed by Interactive Investor staff that the funds were available to trade.

However, we were not told that the Vanguard funds were only available for a strictly limited period as part of a pilot scheme. 

Interactive Investor have since confirmed that any investors who have managed to buy Vanguard funds during the test period will be unaffected by the end of the pilot scheme. You will still be able to track performance and receive valuations within your Interactive Investor portfolios. However, it is unclear whether you’ll be able to add to your Vanguard holdings through the broker. 

Apparently Interactive Investor is engaged in ongoing negotiations with Vanguard about its entire range of funds, but we don’t know on what terms they will be offered, if at all. 

We’re leaving this post up as an historical artifact, and as something to point readers to when they next ask us about this subject. This is the second time we’ve been confused by iii’s systems here, so we’re backing away slowly, closing the door, and running in the opposite direction. No more updates until we get an extremely official announcement, perhaps signed in blood.

At last! Vanguard index funds are now available through a broker that doesn’t impose platform fees, annual charges, dealing costs, or any other sneaky expenses that can nobble a small investor’s returns.

The broker is Interactive Investor (iii) and this development means Britain’s cheapest trackers can now be bought for sums as low as £20, which previously would have been suicidal in the face of flat-rate fees.

Seven funds from the Vanguard index fund range are available through iii, including a few of the instant-portfolio LifeStrategy funds.

However, this is a developing situation and I recommend you ring iii to check whether the funds you require are available.

When rumours first circulated a few weeks ago that iii stocked Vanguard, I was told that only Vanguard’s FTSE UK Equity fund was available. This despite the fact that the entire Vanguard range is listed on iii’s website. That toe in the water has now become a whole leg, so the possibility remains that iii will go all in at some point in the future.

The currently available Vanguard funds are as follows:

• FTSE Developed Europe ex-U.K. Equity Index Fund

• FTSE Developed World ex-U.K. Equity Index Fund

• FTSE U.K. Equity Index Fund

• U.S. Equity Index Fund

• LifeStrategy 20 % Equity Fund

• LifeStrategy 80 % Equity Fund

• LifeStrategy 100 % Equity Fund

All funds are available in ISA accounts and are accumulation flavour.

Don’t take ‘no’ for an answer

One Monevator reader, Sam, has already reported being told a different story – that only the LifeStrategy 100% fund is available, and not in an ISA.

I have previously found with brokers that the story can change from operative to operative, depending on how au fait they are with their internal systems. So if you get a different tale, ask for a double-check and tell the rep to ignore NASDAQ listings – you are only interested in UK or Irish-domiciled OEICs.

Do let us know about your experiences in the comments section, too.

Sadly, iii’s website isn’t keeping up with events and there is currently no way to tell online which of the funds are available to buy and which are listed for information purposes only.

No doubt this situation will change in time – again many brokers often make funds available over the phone for a period before updating their website. So much for the wonderful world of instant digital gratification.

In general, if you want a fund that your broker doesn’t apparently stock, it’s always worth hounding them about it over the phone. They may well say ‘yes’.

A rare victory for the little guy

It’s taken three years for Vanguard funds to breakthrough on a no-fee platform and achieve the same no-strings-attached status as the HSBC index funds, for example.

The reason Vanguard has been resisted is that they don’t pay trail commission to platform operators (i.e. a fee deducted from the fund’s TER that makes it worth the while of your broker or fund supermarket to stock the fund).

Commission of this kind is due to be abolished by the end of the year under the FSA’s Retail Distribution Review (RDR).

The likes of Hargreaves Lansdown recoup their expenses through a platform fee, while Alliance Trust charges dealing fees for buying Vanguard funds.

Many have predicted that all low-cost online platforms will go down this route, making life extremely difficult for small investors as flat-rate fees take large bites out of modest contributions.

But iii have specifically added the following line to their charges sheet:

Charges for “non-commission paying” products – NIL.

It’s a positive sign that iii are seeking to differentiate their offering from other platforms as RDR approaches. There are no guarantees the situation won’t change, but it would surely be a PR disaster for a firm to stake out that position ahead of RDR, luring small investors in, only to move the goalposts a few months later.

So assuming the Vanguard funds aren’t being used as bait, and the website issues are sorted, this new ultra-low cost option adds up to great news for small investors.

Stop press

Before you take any big decisions, you should know that Vanguard is about to launch five physical ETFs on the London Stock Exchange. The Motley Fool has the scoop.

Apparently the FTSE 100 tracker will have a TER of 0.1%, which will make it an instant low-cost table-topper. Expect a listing in the next few weeks, and a Monevator report to boot.

Take it steady,

The Accumulator

Some good reads from around the Web.

I once asked readers to admit they were nostalgic for the turbulent days of 2008 and 2009, when banks were going bust and stock markets were a bargain.

The post was slightly tongue-in-cheek, with my idea being to remind readers that the bad days don’t last forever, even if the headlines take a while to change.

There is a reason to lament more stable times, though, and that’s that buying cheap is the best guide you’ll get to good future returns from equities.

And cheapness tends to come hand-in-hand with fear and turmoil.

Spain is still partying like it’s 2009

Given how I supposedly love cheap markets and can look through bad headlines and gyrating share prices, I have asked myself if I should be putting more money to work in Europe – and in particular Spain.

While the economic slowdown has dragged on everywhere in the Western world, Spain feels like the clock stopped three years ago.

It’s several years ago that the US and UK authorities forced a bailout of their banking systems. Spain is still doing it. Last week saw its fourth attempt to shore its banks, after the all-but nationalisation of one of the biggest domestic lenders, Bankia.

And while Obama may be tearing his hair out about stubbornly high unemployment in the US, compared to Spain’s 24% rate, the US rate of around 8% seems a boon. UK GDP is dipping, but it’s diving again in Spain.

The credit crisis that nearly froze international trade and finance is still spluttering in Spain, too, albeit more evident in the very high yields on Spanish government bonds. The government’s move on Bankia was partly a response to rising fears among Spanish savers over the safety of their money.

Costa notta lotta

Given all this – replicated to a greater or lesser extent across peripheral Europe – why would anyone consider investing in Spain?

Because it’s seemingly dirt cheap, of course.

The Spanish market is down roughly 25% on the year, with the index flirting around the level it touched in early 2009.

In contrast US markets were recently making new highs. Even after its recent falls, the UK’s FTSE 100 is up over 50%.

This weakness is reflected in a very low P/E rating for the Spanish market of around 7.5, according to FT data. That compares to over 10 in the UK (still not exactly expensive) and around 14 in the US.

You might think that a low P/E is warranted, given Spain smells about as healthy as a morgue during a mortician’s strike. As a fan of the country and a semi-regular visitor, I don’t disagree it’s tough there.

My Spanish friends confirm the country is in a right mess. The structural problems behind youth unemployment are almost worse than the headline figures. Much of what makes Spain so great – such as its hedonistic lifestyle and its family-focused culture – is partly to blame for its woes. Then you have issues like an entire generation raised on consumer credit, who make British 20-somethings look like a legion of proto-Warren Buffetts.

The root and consequence of Spain’s problems is a crazy property boom that took people out of real jobs, took money away from productive investment – and that incidentally acted as a cesspit for much of the easy money that flowed here in Britain 5-10 years ago, too.

It’s very difficult to gauge how much of this has been unwound, but again the hidden cost (graduates who eschewed careers to work on building sites, for instance) could be even worse.

But there’s a but as big as any you’ll see at any Greek wedding.

Spain is international, too

The leading companies in Spain are as multinational ours or Germany’s, and more so than America’s. Even the big banks like Santander make the bulk of their money overseas.

It’s therefore somewhat irrational for shares in Spain to be particularly hard hit by the problems at home. They will certainly suffer in a worst-case scenario for Europe, but arguably the more highly-rated US ones will do at least as badly if the global economy turns south as a result.

Some of the discount is warranted because the big financial companies have a life-threatening Spanish asset base, even if they theoretically have plenty of productive assets overseas.

We all know now that a bank can be wiped out if a minority of its assets flounder. The surviving Spanish banks (most of the little ones have gone) have been setting aside money to reflect their shaky property loans, but nobody knows how much is enough.

You might also argue that there’s a certain markdown that’s justified because of the chaos that ejection from the Eurozone could cause.

But perhaps the biggest fear in a country that was a dictatorship in living memory is a return to those truly bad days. If Spain turned into a basket case like Argentina, we could see one of those once-in-a-century blow-ups that makes looking at the historical returns from international markets so revealing.

I don’t think that’s likely, and I believe Europe can cope with its problems – at least to an extent that will eventually justify much higher share prices.

In fact, some of the solutions to Europe’s woes such as restructuring in the South and higher spending by Germany could be a positive boon for corporates.

However so far I can’t bring myself to go overweight on Europe, even though I’m not a pure passive investor and I think the markets look cheap. I have considered buying shares in the likes of Santander and Telefonica, but instead I’ve restricted myself to tilting some of my index fund allocations more in Europe’s direction.

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