Investing in software and IT, e.g. Softcat, Sophos, Saas

[dspp]

Try this

https://investor.vanguard.com/etf/profile/VGT

Vanguard Information Technology ETF (VGT)
Product summary
Seeks to track the performance of a benchmark index that measures the investment return of stocks in the information technology sector.
Passively managed, using a full-replication strategy when possible and a sampling strategy if regulatory constraints dictate.
Includes stocks of companies that serve the electronics and computer industries or that manufacture products based on the latest applied science.

Should tick Matt's box as a way of accessing the sector without taking stock-specific risk.

If you want MSFT info start at https://www.microsoft.com/en-us/investor or Morningsun
- dspp

[SalvorHardin]

I'm kinda torn now between either opening an MSFT or PCT position. I like the idea of PCT because it seriously diversifies my US/tech, but I hate the 1.75% fee. (I briefly glanced at ATT Allianz tech, but that's even worse at 2.0%).

The good news is that Polar Capital Technology's annual management fee isn't 1.75%. It's a bit less than 1% (more on this later). The high fee is due to a performance-related fee of 15% of any outperformance against its benchmark (Dow Jones World Technology Index). So if the managers are getting more than 1% it's because the shareholders are doing well as they will have beaten the index by a reasonable amount (or a lot as in 2017-18).

In 2017-18 PCT's management and performance fee was 1.76% (source p 43 annual report). The annual management fee was 1% on the first £800 million of assets, then 0.85% on anything above. The excellent performance meant that the mentioned performance fee pushed the overall fees to 1.76%.

PCT's fee structure was changed on 15th April 2019 (RNS linked below). The annual management fee is now 1% of the first £800 million of assets, then 0.85% on the next £800 million, 0.8% on the next £400 million and 0.7% on everything above £2,000 million. The performance fee is reduced to 10% of any outperformance against its benchmark (Dow Jones World Technology Index)

https://www.investegate.co.uk/polar-cap ... 00051139W/

I don't have any opinion about Microsoft (it's not in my circle of competence, to quote Warren Buffett), but IMHO there is a lot to be said for buying shares in a foreign company if only because it expands your investment horizons. The third share I ever bought (back in 1985) was American and I've never looked back. IMHO investors who stick to their national stock exchange are restricting their opportunities, particularly for diversification.

[TheMotorcycleBoy]

FWIW,

I've almost given up my scan and slide rule on several UK-based softies. I've looked in various levels of depth at Softcat(SCT), Sophos(SOPH), First Derivatives (FDP), Emis (EMIS). I also briefly read up on Oxford Metrics (OMG) and Learning Technologies (LTG). (Yes I'm off work for a week and the weather is dreadful, little else to do 'cept watch the odd DVD (I hate telly and shopping)).

By and large, I think you people are right. US is the way forward for softie stuff. (I may keep Softcat SCT on the back-burner however).

The good news is that Polar Capital Technology's annual management fee isn't 1.75%. It's a bit less than 1% (more on this later). The high fee is due to a performance-related fee of 15% of any outperformance against its benchmark (Dow Jones World Technology Index). So if the managers are getting more than 1% it's because the shareholders are doing well as they will have beaten the index by a reasonable amount (or a lot as in 2017-18).

In 2017-18 PCT's management and performance fee was 1.76% (source p 43 annual report). The annual management fee was 1% on the first £800 million of assets, then 0.85% on anything above. The excellent performance meant that the mentioned performance fee pushed the overall fees to 1.76%.

Cheers Salvor,
I'd seen the earlier 1.76% figure on HL's website. Thanks for bringing me up to update.

but IMHO there is a lot to be said for buying shares in a foreign company if only because it expands your investment horizons. The third share I ever bought (back in 1985) was American and I've never looked back. IMHO investors who stick to their national stock exchange are restricting their opportunities, particularly for diversification.

This is a very good point, I will take heed!

Try this

https://investor.vanguard.com/etf/profile/VGT

Vanguard Information Technology ETF (VGT)
Product summary
Seeks to track the performance of a benchmark index that measures the investment return of stocks in the information technology sector.
Passively managed, using a full-replication strategy when possible and a sampling strategy if regulatory constraints dictate.
Includes stocks of companies that serve the electronics and computer industries or that manufacture products based on the latest applied science.

Should tick Matt's box as a way of accessing the sector without taking stock-specific risk.

If you want MSFT info start at https://www.microsoft.com/en-us/investor or Morningsun
- dspp

Thanks DSPP,

Alas it's not on iWeb

So I think my plan is to keep researching fund and IT ways of buying into US-softie/tech firms, whilst keeping Microsoft MSFT and Softcat SCT on the watch list.

thanks for all help and comments
Matt

[Alaric]

Alas it's not on iWeb

I doubt it's available at any UK Broker seeing as it's a US rather than an Irish ETF.

That's thanks to the FSA and EU whose approach to investor protection has lead to a position where you can continue to buy the individual components of an index but not a collective containing all the stocks.

[JamesMuenchen]

MSFT looks due another correction imho.

Based on what? I'm guessing you're simply price
anchoring.

Because they're executing well in a huge, virtually untapped market. Adding new customers by the bucket load while existing customers are increasing their spending. That's a wet dream of a business.

I added some $MSFT with my April bonus.

Short of a major downturn or recession, all I see they are 'due' is a shed load of money from their customers and doubling the share price again in the next 3-5 years.

Why do you think they are due a correction?

[TheMotorcycleBoy]

That's a wet dream of a business.

Well, you're definitely convinced, James!

[dspp]

MSFT looks due another correction imho.

Based on what? I'm guessing you're simply price
anchoring.

Because they're executing well in a huge, virtually untapped market. Adding new customers by the bucket load while existing customers are increasing their spending. That's a wet dream of a business.

I added some $MSFT with my April bonus.

Short of a major downturn or recession, all I see they are 'due' is a shed load of money from their customers and doubling the share price again in the next 3-5 years.

Why do you think they are due a correction?

No, not price anchoring at all. But not delving into it greatly either since I am not rushing to have direct exposure to an area it has been a very long time since I examined in depth. Just basing my view on a p/e of 29 (albeit down from 80 ! to trend), and a toppy chart shape, and general macro-economy toppiness, and consumer+business aversion to Msft lock that I expect to increase (though I balance that with OECD govs pro-lock-in tendencies), and US-CN relations, and competitor positioning. If I was buying I would be trying to take a 5-year view and my concern based on the things I noted is that it could be available cheaper at some point in the next few years. However I am very happy to hold it as a fraction of the 50% of the US stocks that make up VWRLD.

regards, dspp

[TheMotorcycleBoy]

I think the real question is whether you believe a USD denominated company is a sound investment. Remember that Apple, MSFT etc have non USD earnings as well, so you will get some protection in that a weak dollar in any reporting period will have inflated foreign earnings and vice versa.

The GBP - USD could get a lot worse and stay worse if the lunatics carry on running the asylum. My point is that you have to run the numbers now and see what they show. Then you can start taking decisions based upon facts.

Hello again people,

So *supposing* I wish to buy US stocks e.g MSFT through my ISA broker, it seems that I need to complete a w8ben form. I assume that means that any earnings I make (capital gains and income) will be taxed according to the US-to-foreign-citizen rate by my UK broker and the money will be sent back to the US IRS?

(As a Qualcomm employee I had to fill something similar in before selling my QCOM granted stock).

As a couple (Mel and I) we use our ISAs as a tax-exempt savings vehicle. However, by investing in US stocks even within our UK ISAs would I be correct to state that we will lose some of tax exemption position since we will now have the US portion of our investments hit by a tax?

I'm still going to fill in a w8ben for my broker but I wanted to clear these queries up before I do anything hasty.

thanks Matt

[PrefInvestor]

Hi Matt, Regarding the W8Ben form, the position as I understand it is as follows, the US (like many other countries) operates a withholding tax on all dividends (I’ve always suspected that this is why many US investments don’t pay any). By withholding tax they mean a tax which gets taken off and given to the IRS without you ever seeing the money, it is deducted at source. To the best of my knowledge as a UK investor using an ISA you won’t have any tax to pay on any capital gains.

By completing a W8Ben form you get to pay a reduced rate of withholding tax on any/all US investments that you hold. Within your ISA it will just look to you like your US investments pay a dividend that is 15% less than declared on the investment. Your ISA limits and benefits are unaffected. Another joy of direct US investing I’m afraid !.

See HLs explanation below:-

https://www.hl.co.uk/help/dealing/overs ... s-a-w-8ben

There is no choice, you have to do it in my experience before you can directly invest in US stocks. Would NOT be required if you bought an investment trust like PCT though.

ATB

Pref

[PrefInvestor]

Hi Again Matt, You were clearly impressed when you looked at the growth in the MSFT stock chart. Well just for entertainment value trying doing a comparison chart over 5+ years against the likes of AMZN, NFLX, AAPL, GOOG etc. Then ask yourself the question (as I always do) "How long can this continue......?"). Betting on any one of these never seems like a good idea to me and so investing in an investment trust which holds them all (or most) at least hopefully avoids the risk of backing the wrong horse, but thats just my kind of (negative, pessimistic) thinking of course.

Around Nov 2017 I did an experiment and did a direct investment in Apple, Google & Facebook - equal sums, ~£10,000 in total. After a month when the Nasdaq had had a particularly bad day I found myself close to 5% down. I got out at that point and returned to more familiar investment territory for me. I continued to track the investments though and even 12 months later with movements in the GBP etc the investment was still substantially down (though largely due to the large fall in Facebook in that period). I have just loaded up my spreadsheet again and as of today those investments are in total 13.5% UP - mostly due to Apple which is ~26% UP according to my spreadsheet So clearly I should have just hung in and stayed the course.

I wish you well with your US investment plans. Just be prepared for volatility and losses though at times.

ATB

Pref

[TheMotorcycleBoy]

Hi Matt, Regarding the W8Ben form, the position as I understand it is as follows, the US (like many other countries) operates a withholding tax on all dividends (I’ve always suspected that this is why many US investments don’t pay any). By withholding tax they mean a tax which gets taken off and given to the IRS without you ever seeing the money, it is deducted at source. To the best of my knowledge as a UK investor using an ISA you won’t have any tax to pay on any capital gains.

By completing a W8Ben form you get to pay a reduced rate of withholding tax on any/all US investments that you hold. Within your ISA it will just look to you like your US investments pay a dividend that is 15% less than declared on the investment. Your ISA limits and benefits are unaffected. Another joy of direct US investing I’m afraid !.

See HLs explanation below:-

https://www.hl.co.uk/help/dealing/overs ... s-a-w-8ben

There is no choice, you have to do it in my experience before you can directly invest in US stocks. Would NOT be required if you bought an investment trust like PCT though.

Yes. I went through the motions of buying Microsoft MSFT, and after I clicked through to set up a limit order, I was prompted to fill in the form (which I haven't done quite yet). But I then went through the motions of buying polar cap tech (PCT) and was able to set up the order without being prompted to fill in the form.

I suspect that the Trust (polar cap) have their own agreement (W8BEN) with the IRS, are presumably treated as generic investor/saver and receive a particular tax rate. However from my limited experience with W8, you have to put on your NI number, so they will know I'm a high rate payer, and hence will a high rate on the investment returns. But I'm only speculating so far.

Matt

[TheMotorcycleBoy]

Around Nov 2017 I did an experiment and did a direct investment in Apple, Google & Facebook - equal sums, ~£10,000 in total. After a month when the Nasdaq had had a particularly bad day I found myself close to 5% down. I got out at that point and returned to more familiar investment territory for me. I continued to track the investments though and even 12 months later with movements in the GBP etc the investment was still substantially down (though largely due to the large fall in Facebook in that period). I have just loaded up my spreadsheet again and as of today those investments are in total 13.5% UP - mostly due to Apple which is ~26% UP according to my spreadsheet So clearly I should have just hung in and stayed the course.

I wish you well with your US investment plans. Just be prepared for volatility and losses though at times.

TBH I'm cool with the choppiness (I do hold some AIM shares!) but I want to be clear on the tax position before I commit.

Matt

[vrdiver]

However from my limited experience with W8, you have to put on your NI number, so they will know I'm a high rate payer

I don't think they will (know your tax status).

The USA wants all investors uniquely identified (you'd have to give your social security number or something like that to your broker if you were a US citizen). The NI number was added to the W8BEN in the last 10 years or so in order to comply, but AFAIAA it is used as an identifier and not linked to your tax status. There is no report back from the US to the UK tax authorities, or vice versa (yet). GDPRS might actually work in our favour in slowing down such exchanges (but of course there's nothing us honest citizens need fear anyway from such an exchange...)

Bearing in mind US investments (like the ones this thread has been discussing) are aimed at capital growth, you'd want your investment to be inside a tax shelter - either an ISA or a SIPP, as neither will suffer Capital Gains Tax.

VRD

[TheMotorcycleBoy]

However from my limited experience with W8, you have to put on your NI number, so they will know I'm a high rate payer

I don't think they will (know your tax status).

The USA wants all investors uniquely identified (you'd have to give your social security number or something like that to your broker if you were a US citizen). The NI number was added to the W8BEN in the last 10 years or so in order to comply, but AFAIAA it is used as an identifier and not linked to your tax status. There is no report back from the US to the UK tax authorities, or vice versa (yet). GDPRS might actually work in our favour in slowing down such exchanges (but of course there's nothing us honest citizens need fear anyway from such an exchange...)

Bearing in mind US investments (like the ones this thread has been discussing) are aimed at capital growth, you'd want your investment to be inside a tax shelter - either an ISA or a SIPP, as neither will suffer Capital Gains Tax.

VRD

Hi VRD,

I went through all the iWeb guidelines on the w8ben. I don't need to submit my NI number in the form (iWeb have my NI already). I just really needed my name and address, my ID with iWeb and a signature.

We only have investments in ISAs so we are ok on the UK tax front.

On iweb chat I confirmed that the withholding tax is 15%. Seeing as (for example) MSFTs DY is only about 1.3% I think, it's mainly a CG investment, so perhaps the 15% on just the divis aint that bad.

I just need to reassure assure myself re. their value.

thanks Matt

[SalvorHardin]

On iweb chat I confirmed that the withholding tax is 15%. Seeing as (for example) MSFTs DY is only about 1.3% I think, it's mainly a CG investment, so perhaps the 15% on just the divis aint that bad.

The 15% is when you have completed the W-8 BEN form. Otherwise it's 30% withholding tax. ISAs provide no protection against this tax.

Your NI number is just for identification, not so they can check your tax rate. It performs the same purpose as America's ITIN (Individual Taxpayer Indentification Number). There is no liability for American income or capital gains tax for Brits owning American shares (so you don't need to complete an American tax return), unless they also happen to be American taxpayers, with a couple of exceptions noted below (these could lead to having to complete an American tax return).

Warning 1: If you buy shares in limited liability partnerships (LLP) quoted on the NYSE such as Blackstone (the biggest alternative asset manager in the world), the dividends are treated as earned income by the American tax authorities. Avoid these. I've been given shares in LLPs when Brookfield Asset Management has spun off businesses as LLPs; I sold them as soon as I could. The broker deducted withholding tax upon the sale proceeds because they are treated as dividends. The IRS seems happy with this.

Warning 2: American funds (close-end, mutual funds, ETFs) can give rise to an American tax liability because they treat gains realised within the fund as the investors' personal gains. It's a nightmare. Avoid these. Britain has much more sensible rules on taxing funds (no personal liability for internal sales).

[dspp]

Another point to factor in is that many US based corporations are relatively stingy with their dividend, especially in the tech sector. For example Msft is on a divi yield of about 1.7%. This means that tax on dividends is of less consequence than tax on capital gains.

- dspp

[TheMotorcycleBoy]

Warning 1: If you buy shares in limited liability partnerships (LLP) quoted on the NYSE such as Blackstone (the biggest alternative asset manager in the world), the dividends are treated as earned income by the American tax authorities. Avoid these. I've been given shares in LLPs when Brookfield Asset Management has spun off businesses as LLPs; I sold them as soon as I could. The broker deducted withholding tax upon the sale proceeds because they are treated as dividends. The IRS seems happy with this.

Warning 2: American funds (close-end, mutual funds, ETFs) can give rise to an American tax liability because they treat gains realised within the fund as the investors' personal gains. It's a nightmare. Avoid these. Britain has much more sensible rules on taxing funds (no personal liability for internal sales).

Thanks for these snippets, Salvor.

[TheMotorcycleBoy]

Another point to factor in is that many US based corporations are relatively stingy with their dividend, especially in the tech sector. For example Msft is on a divi yield of about 1.7%. This means that tax on dividends is of less consequence than tax on capital gains.

- dspp

Hi DSPP,

The web chat person actually stated that I will incur NO tax at all on any capital gains in the US. Only on the dividends. Perhaps you only pay tax on capital gains if you are a US-citizen. I can't claim to know much about it.

Matt

[Alaric]

Perhaps you only pay tax on capital gains if you are a US-citizen. I can't claim to know much about it.

If you invest in a US Company or a fund which holds US Companies, you incur tax at 30% on any dividends. This is withheld by the Company making the distribution or its registrars. If you have a W8-BEN on file, this reduces to 15% or 0% if in a SIPP and the Broker organises your affairs to segregate all pension assets.

As far as I am aware, US taxpayers have to report capital gains and in addition they have to report on gains made inside a fund. It's not withheld at source to the best of my knowledge and therefore for overseas investors such as those from the UK, there's no US tax on gains. As far as the UK is concerned CGT (Capital Gains Tax) only applies to realised gains and as far as UK taxation is concerned a gain is only realised at individual level. In other words a collective investment scheme such as an ETF, IT or OEIC can sell underlying investments without triggering tax consequences to its unit or share holders.

[TheMotorcycleBoy]

I did some fundamental analysis of MSFT right here.

One might assume that they quite pricey. But of course you do have pay for quality, which they seem to have.

Furthermore, from what people are saying, future growth in SaaS / cloud is baked into the price.

I'm thinking i should go the way of salvor and prefinv, and buy PCT for now, and keep a watch on lower msft if there's a sell off.

Matt