Because I practice the art of portfolio insouciance, I missed the exact moment our Slow and Steady demo portfolio hit its peak in May. The undulating graph on my portfolio tracker tells me we were up something like 22% as the rollercoaster car crested the hill.
I wasn’t watching and my stomach skipped the ride, so all I care about is we’re still up 17% on purchase, with a cash gain of £1,600 – a smidgeon better than last quarter.
It’s strange, but like tuning in for late-night sport, the emotion is flattened when you’re not viewing it live.
Here are the bare bones:
The Slow and Steady portfolio is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000 and an extra £750 is invested every quarter into a diversified set of index funds, heavily tilted towards equities. You can read the origin story and catch up on all the previous passive portfolio posts.
No doubt we will do better and we will do much worse. Our graph will oscillate like a skipping rope but let’s focus instead on something we can control – the cost of our portfolio now platform charges are inevitable.
In brief, whereas the cost of holding a fund through a broker or fund supermarket was previously hidden away in its Ongoing Charge Figure (OCF), that charge will now be explicit, and bigger for small investors.
There’s no avoiding it. The FCA1 has decreed that DIY investing platforms must switch to the new charging model over the next couple of years.
Before too long, we’ll all be buying so-called clean funds – funds that no longer conceal platform fees within their OCF – from brokers that cake on an additional charge for their services. Better that slightly pungent cherry on top than a scattering of putrid currents buried in the mix.
Old-style ‘free brokers’ that aren’t really free, selling funds with swollen OCFs, will gradually disappear, and our Monevator broker comparison table will help you hopscotch through the minefield until then.
For now, I’m going to choose Charles Stanley Direct as the Slow and Steady’s new clean fund, execution-only broker. Its 0.25% platform charge is the cheapest option available for a small portfolio like this one. At that rate, we’ll hand over £28.50 per year in platform fees if the portfolio got stuck at its current £11,408 value.
Once our investment needle reaches about £20,000, we may well be better off with a fixed fee broker. That moment looks a few years off yet.
The good news is that index fund OCFs continue to decline, going some way to off-setting the increased platform fees.
So while we’re in upheaval mode, I’m taking the opportunity to sell off most of our old funds and switch into cheaper versions, mostly from BlackRock’s Tracker Fund D range.
Here are our moves:
|Old fund||TER/OCF (%)||New fund||TER/OCF (%)|
|Vanguard U.S. Equity Index||0.2||BlackRock US Equity Tracker Fund D||0.18|
|Vanguard FTSE Developed Europe ex-UK Equity Index||0.25||BlackRock Continental European Equity Tracker Fund D||0.18|
|L&G Global Emerging Markets Index I||0.52||BlackRock Emerging Markets Equity Tracker Fund D||0.28|
|HSBC Japan Index C||0.23||BlackRock Japan Equity Tracker Fund D||0.18|
|HSBC Pacific Index C||0.31||BlackRock Pacific ex Japan Equity Tracker Fund D||0.24|
|HSBC UK Gilt Index C||0.17||Vanguard U.K. Government Bond Index Fund||0.15|
The total weighted OCF of the new portfolio is 0.18% (plus the 0.075 weighted stamp duty charge incurred by the Vanguard UK equity fund.)
That compares to 0.23% for the old version of the portfolio.
It’s possible to buy a slightly cheaper UK fund – the Royal London UK All share Tracker Z Fund – but I’m happy to stick with Vanguard as I suspect it will make up the 0.01% difference by keeping a tighter rein on tracking error.
Note that willy-nilly fund switching for a few hundredths of a basis point in cost improvement is not to be recommended. The change I’ve just made is worth all of £6 per year at the portfolio’s current valuation. You could easily lose many times that if the market spiked while you were hokey-cokeying your funds.
I’m only doing this because this is a demo portfolio that’s designed to present the best possible set-up for new investors.
You might also simplify the portfolio by ditching the separate US, Europe, Japan and Pacific funds in favour of the do-it-all Vanguard FTSE Developed World Ex-UK Equity index fund.
Or you can be lazier still and buy Vanguard’s one-stop-shop LifeStrategy funds.
Again, it’s a fraction more expensive than the Slow and Steady investments but a whole lot quicker to manage. Just add direct debit et voila – instant portfolio!
Every quarter, we lob another £750 into the maelstrom, divided between our seven funds according to our asset allocation.
This quarter the funds we use have changed but of course our asset allocation remains all-important, as that’s what determines where we have our chips.
Here’s the skinny on our latest reshuffle.
Vanguard FTSE U.K. Equity Index Fund – OCF 0.15% (Stamp duty 0.5%)
Fund identifier: GB00B59G4893
New purchase: £112.50
Buy 0.6276 units @ 17926.5p
Target allocation: 15%
Developed World ex UK equities
Split between four funds covering North America, Europe, the developed Pacific and Japan2.
Target allocation (across the following four funds): 51%
North American equities
Vanguard U.S. Equity Index Fund – OCF 0.2%
Fund identifier: GB00B5B71Q71
BlackRock US Equity Tracker Fund D – OCF 0.18%
Fund identifier: GB00B5VRGY09
New purchase: £3,460.36
Buy 2,714 units @ 127.5p
Target allocation: 25%
OCF has gone down from 0.2% to 0.18%
European equities excluding UK
Vanguard FTSE Developed Europe ex-UK Equity Index fund – OCF 0.25%
Fund identifier: GB00B5B71H80
BlackRock Continental European Equity Tracker Fund D – OCF 0.18% Fund identifier: GB00B83MH186
New purchase: £1,469.33
Buy 979.553 units @ 150p
Target allocation: 12%
OCF has gone down from 0.25% to 0.18%
HSBC Japan Index C – OCF 0.23%
Fund identifier: GB00B80QGN87
BlackRock Japan Equity Tracker Fund D – OCF 0.18%
Fund identifier: GB00B6QQ9X96
New purchase: £979.85
Buy 702.401 units @ 139.5p
Target allocation: 7%
OCF has gone down from 0.23% to 0.18%
Pacific equities excluding Japan
HSBC Pacific Index C – OCF 0.31%
Fund identifier: GB00B80QGT40
BlackRock Pacific ex Japan Equity Tracker Fund D – OCF 0.24%
Fund identifier: GB00B849FB47
New purchase: £780.65
Buy 378.589 units @ 206.2p
Target allocation: 7%
OCF has gone down from 0.31% to 0.24%
Emerging market equities
Legal & General Global Emerging Markets Index Fund I – OCF 0.52%
Fund identifier: GB00B4KBDL25
BlackRock Emerging Markets Equity Tracker Fund D – OCF 0.28%
Fund identifier: GB00B84DY642
New purchase: £1072.31
Buy 992.87963 units @ 108p
Target allocation: 10%
OCF has gone down from 0.52% to 0.28%
HSBC UK Gilt Index C – OCF 0.17%
Fund identifier: GB00B80QG383
Vanguard UK Government Bond Index – OCF 0.15%
Fund identifier: IE00B1S75374
New purchase: £2,570.65
Buy 20.253 units @ 12692.95p
Target allocation: 24%
OCF has gone down from 0.17% to 0.15%
New investment = £750
Trading cost = £0
Platform fee = 0.25% per annum
This model portfolio is notionally held with Charles Stanley Direct. You can use that company’s monthly investment option to invest from £50 per fund. Just cancel the option after you’ve traded if you don’t want to make the same investment next month.
Take a look at our online broker table for other good platform options. Look at flat fee brokers if your ISA portfolio is worth substantially more than £20,000.
Average portfolio OCF = 0.18% down from 0.23%
Take it steady,