In a flash, our Slow & Steady demo portfolio is two years old. Time flies when you’re lounging around.
The big news is that there are now cheaper alternatives to most of our funds, thanks to the continued de-clawing of Britain’s financial industry. As a result, we’ve decided it’s time to sell up and look for fresh boltholes.
But before we get into that, what of Mr Market? Has he smiled or frowned since last we checked in?
Mr Market – he happy. In fact our plucky little portfolio has grown every quarter this year to end up 10% in 2012 and 7.33% up since purchase. A new high!
In actual spondoolicks that means we’ve put on £200 since last quarter to take our spoils to £605.13. That’s despite a 2012 wracked by the double-dip, Euro Armageddon every second Tuesday, and onrushing fiscal cliffs.
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 here.
We’ve put in £9,000 so far and the two years has surely taught us two things:
- The market can rise despite a perpetual pipeline of bad news.
- We’re not going to get rich anytime soon.
Despite our mild success we’ve taken a beating against our overall benchmark. The FTSE All-Share climbed 14% in 2012. And even though some of our funds exceeded this performance, our drip-feeding strategy didn’t capture the entire year’s growth. Only a quarter of our new money was even in the market for a whole year.
All change – new funds
Enough of the short-term performance anxiety, it’s time for the main event. We’re selling six of our seven funds and replacing them with lower cost models.
Since our last update, online broker TD Direct has put together an astounding offering for passive investors.
It now offers the cheapest access to index funds in the UK, unencumbered by platform fees or dealing fees. You’ve just got to make sure your ISA is worth over £5,100 or it’s set up with a regular investment facility (in which case you can have pennies in there). You can read up on the charges for yourself here.
Here are our moves:
| Old fund | TER/OCF (%) | New fund | TER/OCF (%) |
| HSBC American Index | 0.3 | Vanguard U.S. Equity Index | 0.2 |
| HSBC European Index | 0.35 | Vanguard FTSE Developed Europe ex-UK Equity Index | 0.25 |
| HSBC FTSE All-Share Index | 0.28 | Vanguard FTSE U.K. Equity Index Fund | 0.151 |
| HSBC Japan Index | 0.33 | HSBC Japan Index C | 0.23 |
| HSBC Pacific Index | 0.46 | HSBC Pacific Index C | 0.36 |
| L&G All-Stocks Gilt Index | 0.23 | HSBC UK Gilt Index C | 0.18 |
The total weighted TER / OCF of the new portfolio is 0.29% (plus the 0.075 weighted stamp duty charge incurred by the UK equity fund.)
That compares to 0.37% for the old version of the portfolio.
Tell my why
Where possible I’ve plumped for Vanguard index funds. These are generally the cheapest and though HSBC’s C Class funds can match them, Vanguard’s investor-friendly culture wins the tie-breakers.
I am also more confident that Vanguard will keep a tighter rein on tracking error and pass on future cost-savings to investors. History has shown that where Vanguard leads, HSBC follows.
Finally, I’m satisfied that the Vanguard funds hug the right indices and match up against my tracker selection criteria at least as well as the previous picks.
As for the new HSBC C Class funds, these are identical to the older HSBC index funds but with 0.1% of trail commission costs lopped out.
The only fund I couldn’t improve upon is the flabby L&G Global Emerging Markets fund. Vanguard does a much cheaper version, but it’s not available through TD Direct.
Word of warning!
I probably wouldn’t make this move with my own portfolio. The gain implied from switching makes less than £1,000 difference over 18 years, given the current rate of cash injection.
That could be cut if the market bucks against us while we’re sitting on the sidelines waiting for the various transactions to go through. Of course, the wind might blow in our favour or scarcely stir at all, but it doesn’t seem worth the hassle for such measly gains.
The difference with a demo portfolio is I’m not going to let that trouble my brain. What’s more, it is our sacred Monevator duty to present the best possible set-up for new investors.
What I would do in reality though is start investing new cash into the cheaper funds.
If that all sounds like a tremendous faff, then you can 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.
This is what I actually do in real life, and the few hundredths of a basis point in extra expense really aren’t worth fretting over.
You can be lazier still by buying Vanguard’s one-stop-shop LifeStrategy funds. Again, they’re a fraction more expensive than the Slow & Steady investments but a whole lot quicker to manage. Just add direct debit et voila – instant portfolio!
Rebalancing rule change
Still haven’t put you off, eh? Okay, well the switch to TD Direct also forces us to change the portfolio’s rebalancing rules.
Previously, we used our new cash to rebalance each fund every quarter. However, that brand of small-time top-up just isn’t gonna fly when TD Direct requires a minimum investment of £50 per fund.
So from now on our quarterly £750 investment dollop will be divided according to the portfolio’s stated asset allocation for the year. For example, the Emerging Market allocation is 10%, so that fund will receive £75 every quarter.
We’ll then rebalance the whole portfolio in one big shindig every year in the fourth quarter.
Just in case things go loopy in the meantime we’ll also invoke Larry Swedroe’s 5/25 rule. This is a threshold rebalancing technique that will put our asset allocation back on track if the portfolio drifts too much over the year. (See here for more on that).
Remember there is no perfect rebalancing strategy, so there’s no saying that rebalancing every year will be better – or worse – than our old tactic.
For the sake of consistency we’d rather we didn’t have to make a change. But again, plans are the first casualty on the battlefield of reality, and we want this paper portfolio to be nailed-on, reality-wise, in order to best demonstrate the power of passive investing.
Asset allocation rejig
Our original 20-year investment horizon has now ticked down to 18 years. Every year we lifestyle our portfolio by shifting 2% out of equities and into gilts.
This move will probably cost us growth but should also lower our exposure to risk the closer we come to cashing out. And while lower future growth from government bonds seems nailed on, they still have a role to play in protecting investors from volatility.
To that end, I took 1% from each of the portfolio’s big US and UK allocations to compensate for the shift to gilts.
The move to TD Direct also forces an uptick in the allocation to Japan and the Pacific from 5% to 7% each. This is done purely to hit the minimum fund investment figure of £50. That’s not the best reason to fiddle with your asset allocation, but it demonstrates how small investors have to deviate from the textbook in order to cope with the realities of the financial industry.
The 4% shift to the East came at the expense of the West. I shaved the odd 0.5% from Europe and America, and sliced a whole 3% off the UK. Essentially I’m happy to unwind the portfolio’s home bias, which is more of a psychological crutch than a necessity right now.
New transactions
Every quarter, we continue to cast another £750 into the money mincer. As discussed, this time we’re also selling off six of our old funds, buying replacement funds and rebalancing, too.
UK equity
HSBC FTSE All Share Index – OCF 0.28%
Fund identifier: GB0000438233
Sell: £1,706.49
Replaced by:
Vanguard FTSE U.K. Equity Index Fund – OCF 0.15% (Stamp duty 0.5%)
Fund identifier: GB00B59G4893
New purchase: £1,440.76
Buy 8.92 units @ 16152p
Target allocation: 15%
OCF has gone down from 0.28% to 0.15%
Developed World ex UK equities
Split between four funds covering North America, Europe, the developed Pacific and Japan.
Target allocation (across the following four funds): 51%
North American equities
HSBC American Index – OCF 0.3%
Fund identifier: GB0000470418
Sell: £2,264.23
Replaced by:
Vanguard U.S. Equity Index Fund – OCF 0.2%
Fund identifier: GB00B5B71Q71
New purchase: £2,401.27
Buy 14.05 units @ 17095p
Target allocation: 25%
OCF has gone down from 0.3% to 0.2%
European equities excluding UK
HSBC European Index – OCF 0.35%
Fund identifier: GB0000469071
Sell: £1,164.87
Replaced by:
Vanguard FTSE Developed Europe ex-UK Equity Index fund– OCF 0.25%
Fund identifier: GB00B5B71H80
New purchase: £1,152.61
Buy 8.35 units @ 13796p
Target allocation: 12%
OCF has gone down from 0.35% to 0.25%
Japanese equities
HSBC Japan Index – OCF 0.33%
Fund identifier: GB0000150374
Sell: £460.09
Replaced by:
HSBC Japan Index C – OCF 0.23%
Fund identifier: GB00B80QGN87
New purchase: £672.36
Buy 1111.51 units @ 60.5p
Target allocation: 7%
OCF has gone down from 0.33% to 0.23%
Pacific equities excluding Japan
HSBC Pacific Index – OCF 0.46%
Fund identifier: GB0000150713
Sell: £458.22
Replaced by:
HSBC Pacific Index C – OCF 0.36%
Fund identifier: GB00B80QGT40
New purchase: £672.36
Buy 269.91 units @ 249.1p
Target allocation: 7%
OCF has gone down from 0.46% to 0.36%
Emerging market equities
Legal & General Global Emerging Markets Index Fund – OCF 1.06%
Fund identifier: GB00B4MBFN60
New purchase: £50.27
Buy 105.56 units @ 47.62p
Target allocation: 10%
Note: I threw an extra £1 into this purchase to hit the minimum £50 investment figure.
UK Gilts
L&G All Stocks Gilt Index Trust – OCF 0.23%
Fund identifier: GB0002051406
Sell: £1,889.95
Replaced by:
HSBC UK Gilt Index C – OCF 0.18%
Fund identifier: GB00B80QG383
New purchase: £2,305.22
Buy 1940.42 units @ 118.8p
Target allocation: 24%
OCF has gone down from 0.23% to 0.18%
New investment = £751
Trading cost = £0
Platform fees = £0
Average portfolio OCF = 0.29% down from 0.37%
Phew!
Take it steady,
The Accumulator
- Plus a 0.5 stamp duty fee. [↩]
Comments on this entry are closed.
Are you also paying a fee to transfer out of iii? I have my Vanguard funds with Bestinvest and I would probably move to TD Direct if it wasn’t for the transfer out fees.
Thank you for flagging up TD Direct. I recently came across their highly competitive fee structure with Vanguard funds and wasn’t sure whether I had missed a catch. A couple of questions:
– is the TD Direct fee structure likely to be RDR-ready or is there a danger that they will bowl a ‘iii googly’ ? (I obviously know you can’t predict perfectly but interested in your opinion based on your industry knowledge nevertheless).
– I see that you only allow 0.15% TER for the Vanguard FTSE tracker and ignore the 0.5% upfront stamp duty charge. I have been handling this differently. On the basis of a 20 year ‘drip feeding’ investment horizon (and therefore average investment time of 10 years) I have been allowing an extra 0.05% in the TER to account for the stamp duty charge.
Am I right in thinking that your logic is that for other companies’ funds the stamp duty charge is a hidden expense (ie not included in the TER)?
In this case your approach probably makes a bit more sense than mine I guess.
Thanks as every for a great blog.
Sorry missed a question
I noticed the other day that the HSBC Pacific Index appears to have massively underperformed the iShares Pacific Index ETF. This appears to be much more than could be accounted for by costs and the quoted tracking error for HSBC seems low.
I don’t know whether I am missing something but are you aware of this and do you have an opinion?
I second saveonarola. I’m with Hargreaves Lansdown. Having taken a closer look at the fees charged on my ISA and SIPP following your post, I’d transfer to TD Direct in a heartbeat if it weren’t for the transfer fees. I’d end up paying several hundred just to leave. Ouch!
Hi Accy,
Is there any particular reason why you are not drip feeding monies monthly? Also would any of these funds or the LifeStrategy option incur a dividend reinvestment plan (DRIP) charge?
Alternatively would a separate isa cash account be more viable instead of a gilts fund, at present, to offset the equity investment? Also from the 2% rebalancing per year for 20 yrs I’m assuming you are looking to end up with a 60/40 equity to bonds mix or are you starting at 80/20 and looking to end up with a 40/60 mix?
My max personal amounts are 150/200 for equity investing so I’m guessing I would have to go down the Ftse, Ftse Dev World ex UK, E.M and Gilts/Cash or a 100% Life Strategy + Gilts/Cash or an 80/20 route if the minimum is £50 per fund.
For the simple approach the Vanguard LifeStrategy funds sound pretty good.
Have you got any opinion of Nutmeg? I started using it recently dripfeeding on a monthly basis and so far it seems to be doing alright (interestingly the risk level I’ve opted for is 4/10 which they call “Slow and Steady is acceptable”).
Cheers,
JC
I wonder whether your L&G flabby global emerging market tracker has a New Year resolution to lose some weight?
I say that because TD rebate all trail commission on funds paying them less than 0.5%. If you buy that L&G tracker through Cavendish there is a 0.3% renewal commission rebate. So hopefully TD will being paid trail commission also on that fund, which should in theory be paid back into your account with TD on 31st December 2013. Unfortunately there is no easy way to tell if TD are paid commission on a particular fund; it may be they have negotiated none.
Before the end of the year hopefully a clean version of the L&G emerging market fund (or better still Vanguard emerging market fund) will become available through TD in any case.
In real life I must admit to no emerging market exposure but I am about to go for the Vanguard emerging market ETF.
Accy,
If I’ve got the numbers right then if the target allocation for E.M is 10% with a minimum contribution of £50 per fund then the total contributions across the other funds would be £450. In total £500. At least twice too much for me so my cost effective alternative is a LifeStrategy fund. No hardship. Btw I’m noting your equity to bond ratio is starting out at 76/24 and therefore if you reduce equity exposure by 2% a year relative to bonds then you will be somewhere south of 40/60 by the time 20 years is up.
Dominique … my understanding is that Hargreaves Lansdown have no fee for ISA transfers out; I’ve just checked as I’m moving mine to TD Direct. I hold SWIP with HL which I’ll be changing to Vanguard so it’s not an issue that transfers are in cash. You do pay £25 to transfer stocks by the looks of things.
The TD Direct phone lines were very busy over the holiday, presumably getting loads of new business with their attractive fee structure.
@ Save – As it’s a demo portfolio, I decided not to get bogged down in worrying about transfers charges, but yes, you would have to pay to get out of iii.
@ David – are you saying you’ll transfer out of HL in cash? Are you not worried about being out of the market?
Here’s a Monevator piece on ISA transfers, in case it helps: http://monevator.com/how-to-transfer-a-stocks-and-shares-isa/
@ Passive – TD’s current price structure includes an RDR platform fee that is magically waived for funds paying less than 0.5% trail i.e. all the tracker funds that we’re considering. My personal opinion is that TD won’t sustain this benevolent structure forever. I have no information to that effect, it just seems inevitable as these accounts would appear to cost them money right now. It’s a gamble, but I guess that if they do change their fees in the future then the new structure will be line with other brokers rather than way ahead of the pack as it is now.
I did flag up the Vanguard UK fund’s 0.5% initial charge and did account for it in behind-the-scenes calculations comparing the portfolio versus LifeStrategy and its former incarnation. I like your calculation, but you’re absolutely right, I didn’t worry about it because that’s a hidden charge that will seep out in tracking error in other UK funds.
Not aware of the Pacific tracker discrepancies. Instant reaction without checking is are they tracking the same index? Are the timeframes the same?
@ John – quarterly drip-feed is just to keep things simple and to show that there’s more than one way to skin a cat. For example, re: the £50 limit and smaller investment sums, you could put your entire sum into one or two funds every month and then move on to the next fund the following month.
No dividend reinvestment charges as all the funds are accumulation units so they roll up divis automatically and gratis.
2% rebalancing takes the asset allocation from 80/20 to 40/60 over 20 years.
I think cash is a reasonable alternative to bonds right now.
@ JC – only looked at Nutmeg briefly. It didn’t seem to be doing anything I couldn’t do myself, although it looked very approachable. Would be interested to hear more of your experience. How do their charges compare with LifeStrategy?
@ Snowman – great point about the potential for a rebate. I’ll email TD and enquire. I’ve got a document from Fidelity’s Fund Supermarket that shows there’s room for a 0.25% rebate on the L&G Emerging Market fund, but they don’t give it back.
Thanks accumulator. You were right about HSBC Pacific index ex Japan vs iShares Pacific Ex Japan. The former is FTSE (more diversified as it happens). The latter is MSCI with more than 50% in Australia and 50% in financial stocks.
The FTSE index looks more diversified and I guess the magic of regression to the mean will lead the HSBC fund to out perform ishares in due course.
Hi accumulator, I always like reading your articles, they’ve taught me much and encouraged me to learn more.
I’m sure you’ve seen the Vanguard ETFs that are now available on TD too. Is there any reason you chose the Vanguard Funds over the EFTs? I would naively have thought the ETFs would be the better option due to their lower TERs – more than 50% for the US index.
@Ben – ETFs have dealing fees (£1.50 if investing regularly + £12.50 to sell) whereas the funds don’t. For small amounts of money this is relevant.
Probably not quite the right place, but I have just noticed that TD is starting to offer a whole load of clean share classes for active funds which are easy to search for (it’s one of the options in the dropdowns). Is isn’t even as if they are putting large minimum investment values in.
http://lt.morningstar.com/e4e1fvybwy/fundquickrank/default.aspx
TD are so far ahead of the others at the moment it is ridiculous!
Oh and for people worrying about possible fee hikes, this is in their T&Cs of the last e-mail they sent when they changed them:
“If you decide to close your account as a result of changes to our Rates and Charges, you will not pay any exit fees if you notify us within 30 days of receiving this email.”
I assume they will have something similar if they do bump up costs.
Finally, TD do seem to have a clean version of the L&G Emerging Markets tracker (TER: 0.49%), though I suspect they haven’t put the top-up amount or regular investing amounts in properly yet. (Min initial: £500, top-up: £20k!)
To be honest, I would probably get the Aberdeen (TER:0.91) or First State EM (TER:1.20) funds, which probably isn’t in the spirit of this article!
Great contributions, Greg. Especially on the lower cost L&G Emerging Markets tracker. Turns out that’s the institutional version – I Class. The OCF is 0.57%. That means an Emerging Market tracker is at last available at decent cost without extra charges. Let me know if anyone manages to top this up for less than £20K. That surely is wrong. ISIN code is GB00B4KBDL25. I’ll use this to replace the Retail version next time around.
Thanks for the information about TD. Sadly, I don’t have enough time to keep up to date with all the changes these days, so I appreciate the heads-up.
I understand why you have opted to invest £75 in the EM fund, because the target allocation is 10%. However, in practice it can be a good idea to to rebalance the portfolio ‘on the go’ each quarter, by investing in those funds that are underweight in your target model.
If the minimum investment in each fund is £50, then you have sufficient wiggle room to target £25 to another fund, or you could re-target the entire £75 if the EM fund does particularly well.
In addition should we look at reducing costs further by keeping outside of an ISA or SIPP wrapper until the fund is sizeable enough to keep the total costs < 1%?
John, you aren’t incurring any costs for being in an ISA.
You can even find SIPPs sans fees: http://monevator.com/cheapest-pension-diy/
And a stakeholder pension is also worth considering for small pots: http://monevator.com/cheap-stakeholder-pension/
This all seems quite complicated for a passive portfolio aimed at people who don’t want to spend too much of their time monitoring and maintaining investments.
Could you have continued the existing portfolio with the same funds but made a note of cheaper alternatives?
I’m not sure that you read the article and comments thoroughly, Doktor.
In which TA makes it clear that he could, and perhaps even would, have done that, but wishes to present a model portfolio in the clearest possible terms to readers picking up the trail at any point.
To perpetually qualify the whole mission with “this portfolio would be like x if wasn’t for y having done z” wouldn’t help to achieve that.
Hi Accy,
If I want to go down the Vanguard route for my SIPP should I be concerned that Best Invest are exacting an initial charge on the Life Strategy funds? As a comparison my opaque section 32 l&g with profits plan charges about 1% a year and seems to be limping along at less than 2% a year upswing.
John, if that initial charge is about 0.24% then everyone charges that on the LifeStrategy funds – that’s a Vanguard dilution levy designed to make each investor pay their share of the fund’s transaction costs. In other words, it’s designed to penalise people who churn.
If you want to buy Vanguard from Best Invest then their custody charges are more relevant. Take a look at this piece, as Sippdeal can be better under some circumstances: http://monevator.com/bestinvest-vanguard/
Make sure you double-check the numbers in case the brokers have updated their charges in the last month.
@ Simon – couldn’t have put it better myself. Hope that makes sense Doktor, though I do appreciate your point. It would certainly have made it easier for me!
Can anyone confirm what HL’s ISA transfer charges are?
This post seems to say £25+ vat: http://monevator.com/hargreaves-lansdown-switching-fees/
Given the dilution levy for the lifestrategy funds to be paid if cashing out and back in, it may not be worth switching especially if TD Direct’s low charges dont last for long.
@ Simon.
Hello, yes I do think I read and understood the article.
I’d be more impressed if there was an argument for an investor to be able to select a portfolio of x passive accumulation funds/ETFs on day 1 and to hold them until the investment aim had been achieved.
I still think that this has over complicated and negated the simplicity of the original concepts.
@DoktorMing — I’m actually somewhat sympathetic to your view, and I worry that we’re making simple investing complicated for the sake of a few tenths of a percent.
This is something we discussed, though, and The Accumulator is very much alert to this semi contradiction…
And I can equally see the argument that maintaining an artificially expensive legacy portfolio here for two decades because it happened to be the best funds when we started is a bit artificial, and could become confusing if/as those legacy funds became increasingly dated.
I think we could have gone either way, with pros and cons, and in the end it was The Accumulator’s portfolio and his decision.
He’ll be following up with thoughts along these lines in a future article, anyway.
Thanks for all the thoughts everyone!
Can I had a 1/2 pence worth which is that I think that the low cost demo portfolio is incredibly informative as Accumulator has constructed it (ie changing to the new lower cost products and platforms). I think most people don’t see the exercise as an exact recipe book to be taken literally. It is more just a helpful demonstration of what is possible. Like me people will change if it is makes a big difference but probably wont bother if there is less than a tank full of petrol in it.
additionally it would look a little ridiculous in 5 years say if the demo portfolio contained higher than necessary products. The benefits (some general some personal) as I see them are
– it is a helpful pointer to the cheapest and best products. Particularly useful for new investors.
– it keeps the product providers on guard
– it demonstrates the power of staying in the market through thick and thin
– I have understood the vanguard charges better
– I have realised that there can be big differences in MSCI and FTSE indexes with the same name.
As always thank you for such a useful and informative blog. If you could wheedle reliable tracking error data from providers then I would be in complete awe (I do understand that this would be very difficult)
All best
Adrian
@ Doktor – the argument you’re referring to, I think, is encapsulated by the Vanguard LifeStrategy funds as mentioned in the piece. Here’s the link: http://monevator.com/vanguard-lifestrategy/
As The Investor hinted, his qualms about the faff factor have led to a follow up piece that helps investors work out whether a switch is worth their while. Though, to be fair, that’s not exactly a push-button answer either. Ultimately, if your whole portfolio has a TER of around 0.5% or less then I wouldn’t worry about it unless it’s an itch you just gotta scratch.
@ Adrian PI – Appreciate it. I hear you on tracking error. If I could do that, I’d retire. In the meantime, this is the best I’ve been able to fathom: http://monevator.com/tracking-error-how-to-measure-it/
The switch of the slow and steady portfolio to the lower charging funds and best current provider is in my view a good thing. So another vote here for that.
In a years time some of the classes of units currently available (in particular the HSBC ones) are probably not going to be available for new investment so would have to be changed in any case.
The starting point of the ‘best’ portfolio and ‘best’ platform a new passive investor might go for, is I think more useful to most readers than a less ‘perfect’ portfolio that exists only for historical reasons.
It also serves as a ‘best’ portfolio comparison for those of us currently using others platforms and funds.
I’m a bit late in saying it but a happy New Year to everyone at monevator and thanks for all your useful posts from last year.
Thanks for all the comments. It certainly got me thinking about my plans to transfer at £80k ISA from Fidelity to HL before the end of this tax year. After reading the comments on TD I investigated further and came across this (old) forum where TD does not come out very highly:
http://moneyforums.citywire.co.uk/yaf_postst228p2_Interactive-Investor-ISA-vs-TD-Waterhouse-ISA.aspx
The previous disadvantage of a transfer from Fidelity was that they refused to do ‘in specie’ transfers to HL. Following adoption of the RDR they now offer ‘in specie’ transfers.
One of the resaons for the move is to find a better platform than Fidelity’s. The integration between their funds platform and individual stocks platform (managed by Charles Stanley) is terrible (I keep a mixture of both).
In general with larger holdings, HL becomes more attractive however I now realise that they are not the cheapest and offer a limited range of low cost trackers (and some of them stretch the definition of low cost with the trail commission).
http://www.hl.co.uk/funds/index-tracker-funds/view-index-tracker-funds
Hello Mr Accumulator and congratulations on your website. As a first-time investor, I’m finding it extremely useful! I have a question regarding investing in an Emerging Market tracker. I’m planning to invest via TD Direct and I found this fund via their Fund Screener: L&G Global Emerging Markets Index I Acc (ISIN: GB00B4KBDL25). The Key Investor doc. shows ongoing charges of 0.57%, but the TER is quoted as 0.49% (not sure what the difference is!!!). This seems a good deal when compared with a similar fund from Vanguard (0.55% TER plus 0.25% purchase fee). I would really appreciate your opinion on the choice between these 2 funds. I’m planning to allocate £60k of my portfolion in emerging markets. Many thanks, Serena
@ Snowman – Cheers! And a Happy New Year to you too. And agreed by the looks of what’s happening at Alliance Trust the ‘dirty’ share classes are getting wiped out.
@ Bob – for what it’s worth my experience with TD has been fine. The occasional frustration, but nothing major. I don’t ask much from them, though.
@ Serena – I wouldn’t have any problem using the L&G fund. To the best of my knowledge you can’t get the Vanguard Emerging Market tracker through TD. The Ongoing Charge Figure (OCF) is the one to pay attention to, the difference between that and the TER is slight, obscure and technical. Vanguard TERs will almost certainly be the same as their OCFs.
Many thanks Mr Accumulator, really helpful clarification. I thought that I could invest in the Vanguard Emerging Market tracker directly via Vanguard, but I’ve just noticed that the minimum investment is £100k PER FUND. I’m still planning to invest with Vanguard directly on a less volatile fund, as I agree with some of your readers that the current TD charging structure for trackers is too good to last!
I may have missed it before but when you log into TD and choose UK trading and then UK funds it brings up a link about ‘Please make sure you have read and understood this essential information regarding fund charges’ which takes you to
http://www.tddirectinvesting.co.uk/investment-choices/funds-unit-trusts-and-oeics/rdr-important-info/
I can’t work out if the platform fee they are referring to is simply referring to the existing platform fee that is waived if you meet specific criteria.
There seems to be a new tool to pick out clean share classes and low cost tracker funds although it didn’t seem to work when I tried.
I will probably now find out it has been there all along and I have been the only one to miss it!!
@Snowman
The wording of the piece to me suggests that they will be introducing a new fee, though that it pure speculation on my part.
TD charge a 0.35% fee for any fund that would have given them 0.5% or more kickback (which they refund) which might fit the bill, but that doesn’t seem to me to be what they are on about here either. Rather ominous!
@Serena
If you want to go the Vanguard route for EM and still use TD, you can always got the ETF route (ISINIE00B3VVMM84, TER: 0.45%, dealing fee of £12.50 each way but that’s not a problem if you are buying in large chunks and there’s no dilution levy or stamp duty due to the way ETFs work.)
I would also guess that TD might not play with the charges when using ETFs as they get their money from the trade.
Note that I know almost nothing else about this ETF…
It seems to me that they are referring to their existing platform fee. They have already published new charges commencing Feb 1, and the platform fee arrangement remains the same as it is now:
http://www.tddirectinvesting.co.uk/choose-an-account/rates-and-charges/~/media/uk/pdf/rates-charges-addendum.ashx
I think it highly unlikely they’ve published their upcoming charges with the intention of slapping on yet another fee in the near future.
What happens in another 6 months or a year or more is another question.
http://www.ft.com/cms/s/0/48c22196-58e7-11e2-99e6-00144feab49a.html#axzz2HrnvnnAz
Bad news. Looks like TD are going to introduce a 0.35% fund platform fee later this year.
I have located this message that has recently appeared on the TD Direct Investing website that confirms the 0.35% platform fee from August 2013.
http://www.tddirectinvesting.co.uk/investment-choices/funds-unit-trusts-and-oeics/funds-pricing/
“Try out new clean funds online fee free until August 2013
We know that every investor is different and we want to provide you with the support you need to understand and try out new clean funds.
For this reason, we will not be charging a platform fee on clean funds until August 2013. The fee we will introduce at this time will be 0.35%.”
So Vanguard will still not attract a fee then?
Btw Am I right in that H-L’s SIPP platform at £24 a year per fund and no dealing costs is the best deal if you only hold no more than 2 funds?
@Snowman
Thanks for letting us know, i’m glad I didn’t switch now. It was a little too good to be true.
@john
It sounds like all funds will have a platform fee of 0.35% from August and so will only be cheap for small holdings.
.35% seems a hefty add on to the OCF.
The annual £24 platform fee over at H-L now seems reasonable being that, in effect, it reduces year on year, if you add contributions and any other gains.
The 0.35% fee will apply to all clean-priced funds (ie, no trail commission and maybe also no platform commission).
I guarantee that HL will, at some point, increase their charges on Vanguard, unless the FSA lets them continue to keep commission on funds that pay it.
Thanks, Snowman. That ends the mystery of how TD Direct can do it. They can’t.
Breakevens on 0.35% platform fee:
Alliance Trust @ £48 annual charge = £13,714
iii @ £80 annual charge = £22,857
HL @ £24 annual charge (1 fund portfolio) = £6857
Portfolios values below these breakeven rates are better off at TD (in a regular trading ISA).
There are dealing fees to account for at iii and Alliance Trust too. Estimate your likely annual dealing fees and add them to the annual charge / platform fee.
Then the calculation is: Total costs / 0.0035 = £breakeven
@ John – For my calculations on your Vanguard question, see here: http://monevator.com/cheap-vanguard-index-funds/
Thanks Accy,
Just as I was bemoaning the shifting of the goal posts…
You’re a star.
Just to be clear, the breakeven figures are for a standalone portfolio of a single clean priced tracker in a single account. If you hold this investment in an ISA and an unwrapped investment account, the breakeven point for ATS and HL doubles. If your spouse also has two accounts, the breakeven point quadruples. If you hold more than one tracker in HL, multiply the breakeven point by the number of trackers. For iii, the breakeven point remains the same.
For people who have other investments that are not clean priced, you also need to take into account rebates.
Also if my numbers are correct for a SIPP with a minm of £40 charge at TD it would appear that you would need at least £8k with them to equal £4800 with H-L?
Hi all,
Recently found the site and, it seems, my kind of people! Like many of you I’m considering walking away from the active management approach and venturing down the index/passive path with Vanguard funds – in particular the Life Strategy funds. (I read ‘A Random Walk Down Wall Street’ over xmas which will convince most people! along with Fama/French studies).
I’m trying to weight up which platform would be best suited to consolidate some old pension schemes into a SIPP and use these funds as core allocations. As a fund research analyst I would still like to option to add some active funds (maybe up to 20%) in certain circumstances but the main need is the most cost effective place to Vanguard my portfolio in just a handful of their funds.
I’m drawn to Hargreaves on the quality of information, overall service and now that they have matched BestInvest with loyalty bonuses on most funds. Anyone done a similar switch recent?
It looks like TD are introducing fees from August 2013 of .35%, which would make it not such a good deal.
Sorry, please ignore last comment. I hadn’t read all of the above, just the initial text!
For all you budding asset allocators/fund researchers out there I came across a useful tool for seeing how your chosen investments (funds, trackers) might look when aggregated up to the portfolio level, including a view on the total TER, risk and historic performance. I know other more detailed systems exist (Morningstar etc) but this is quite nicely presented and quick to use. It also tries to recommend alternative funds if you have a few duds in there – no short cut for doing your own research mind but helpful nonetheless
https://www.rplan.co.uk/
I forgot to add that you can also research funds and compare TER’s on this site, see model portfolios and compare platform charges across all the major supermarkets, brokerages etc. Of course, we have a passive mindset but you can still view trackers and other indexed funds. You can even invest via them although I only plan on using it as a tool. All free too
Hey Dan,
Thanks for spotlighting the virtual portfolio tool – it is very simple and clear to use. Here’s a direct link: https://www.rplan.co.uk/virtualpots/new#overview
You’re right it won’t have enough detail for some and doesn’t cover every index tracker out there, but it is very approachable.
I wouldn’t use rplan’s comparison tool to compare brokers if you’re a passive investor. The comparison is based on the costs of the top 10 selling Cofunds funds – which will be mostly active funds – so the comparison will be way off for passive investors.
I’m new to investing and have found your passive portfolio incredibly useful, so thank you very much!
Am I right in thinking there’s a minimum initial investment of at least £500 for both the HSBC Japan & Pacific Ex-Japan C-Class funds? And it also seems that any additional purchases need to be for at least £1000… or have I misunderstood something? (I’m using TD Direct.) If that is the case, I’m assuming it would be best to stick with something like the Vanguard FTSE Developed World Ex-UK fund you suggest.
Becky, I think you’re right about the minimum initial investment. That’s a relatively recent development. After that you can invest for £50 a time. I have a feeling the minimum may not apply if you set up a regular investment, though. It’s worth a quick phone call to TD to check.
@Accumulator “It’s worth a quick phone call to TD to check” … I’m not so sure such a thing exists anymore. My last few attempts have resulted in interminable delays in their call queuing system. Perhaps this is different for opening new accounts, but enquiries and general account maintenance seem to take forever … Perhaps they can subliminally tell I’m calling to cancel ISA transfers because of the 0.35% fees hike.
I realise it’s restricted to Hargreaves Lansdown but I’m surprised the SWIP FTSE All Share Index at a rock bottom 0.10% plus £2/month doesn’t get mentioned more often. For a single holding of a reasonable sum this – by my calculations – is the best value I can find for a FTSE All Share tracker.
@ David – I like your idea that TD are detecting your negative gamma rays. I think it’s probably taken me about 20 minutes to get through the last couple of times too, so pretty poor.
I haven’t mentioned the SWIP fund because I don’t like the idea of a single fund portfolio focussed entirely on the FTSE. A highly concentrated 100% equity portfolio like that isn’t one I’d recommend. I also don’t like the way HL have bagged it as an ‘exclusive’.
I did look to include it in my recent tracking error review of FTSE All Share trackers but it doesn’t have a long enough performance record.
@Accumulator – I’m not sure I understand your comments re. SWIP. Is it simply a “not all your eggs in one basket” concern and you’d feel the same about having everything in Vanguard FTSE UK Equity Income Index, or something I’ve missed?
I can live with the exclusive HL tag for the lower fees which I reckon work out at £56 less on a £20k holding per year (from next August, assuming Vanguard are 0.15+0.35% with TD and HL SWIP are 0.1%+£2/month).
Also disappointing to report that the TD call centre is equally busy morning, afternoon and evening as my experience this week shows (minimum wait 19 minutes); at least when you get through they are very helpful and knowledgeable.
@ David – it’s because, as a passive investor, you’d likely be paying £2 per fund, so if you own a diversified portfolio with several funds, there are generally cheaper ways to do it than HL even with the SWIP fund. Depending, of course, on multiple caveats like how skewed you are to the FTSE All-Share, how much trading you do, which account etc. The recent news from TD Direct makes HL more competitive too.
Thanks, Accumulator. I took your advice and gave TD a call. They confirmed that the £500 minimum purchase applies to all funds, not just the HSBC C Class funds.
They also said that additional purchases on the HSBC C Classes could be as little as £25, and that’s without having regular investments set up. That surprised me, as it doesn’t seem to match up with what’s on their website… I’ve bought a couple of the funds now, so it will be interesting to see if that holds true.
I am a little confused about the platform fee in TD.
According to TD’s web page. From August it will charge 0.35% platform fee for ‘clean funds’. So for example, HSBC Japan C will cost 0.23% + 0.35 % =0.58% from August? But if we stay in HSBC Japan which cost 0.33% and trial commission =0.5% will be charged 0.35% platform fee) . And all the Vanguard funds will been charged another 0.35% platform fee after August. But stay in the old funds will not been charged platform fee (I think commission are all < 0.5%) according to the structure now. Am I right or the old funds will been charged platform fee as well?
I have a simple (possibly stupid) question, I would greatly appreciate advice for! If you already hold a less ideal index tracker outside an ISA, does it ever make any sense for you to trade for a lower cost alternative with lower tracking error? In my case, I have thought about trading a £40K holding in the Fidelity Moneybuilder UK Index Fund for the Vanguard equivalent given my 40 year horizon. But I might well incur capital gains tax, as well as possible losses if the market moves.
So, should I trade or is it generally more cost-effective/sensible to stop adding to the less ideal index tracker and start adding its better Vanguard equivalent as suggested in the Accumulator’s Word of Warning? With the latter “keep the so-so fund but add the better fund” approach I can foresee a rather complicated portfolio as more economical Vanguard funds hopefully become available.
Only problem is TD Direct’s platform appears to be b0rked!
Adding Vanguard funds to the regular investment portfolio seems to break the site 🙁
Excellent reading as always. Just a quick query if anyone can offer help- can someone help me to understand how the stamp duty is applied with the Vanguard UK Equity Index? Cheers.
Do you part sell or transfer from fund to fund to rebalance and is there a cost implication to that?