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Vanguard

Closed-end funds and OEICs
UnclePhilip
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Re: Vanguard

#238447

Postby UnclePhilip » July 22nd, 2019, 4:06 pm

tikunetih wrote:
UnclePhilip wrote:Once the proceeds of a house sale come, we'll have about 1/3rd of our equity investments in an actively managed Fisher Investments global fund (which we've held already for a couple of years, about 1/3rd in UK shares directly held, and about 1/3rd where I'm now looking for this global index fund with perhaps some bonds.


Is there a plan or a strategy behind the portfolio, or is it just a bunch of stuff?

How did you end up in the Fisher fund? Identified and chose it yourself, or were sold it?

Maybe I'm wrong, but from what you've written so far I get the sense it's a bit haphazard...


Made me chuckle, thanks. One man's plan is another man's haphazard bunch of stuff....

The plan:
(i) Asset allocation. A wish to re-balance so that joint net worth 30% property and 70% equities/bonds (with cash buffer)
(ii) Mortality. A wish to greatly simplify so my grieving (hopefully) widow doesn't have to bother with stuff that bores her
(iii) Management. A wish to change habits of a lifetime and due to (ii) above use a manager; hence Fisher
(iv) Global. A wish to diversify away from UK to global (hence Fisher, again)
(v) Passive/active. A wish to diversify away from a single active portfolio manager; hence current questions re global index trackers

I chose Fisher, very happy with them so far

(vii) Looking ahead; thinking about current UK directly owned shares. Thinking of going more fully to funds

So, that's my bunch of stuff!

Uncle

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Re: Vanguard

#238449

Postby Lootman » July 22nd, 2019, 4:25 pm

mc2fool wrote:
Open Ended
- Managed by a person.

Not necessarily. "Tracker" OEICs that follow an index are almost certainly mechanised (although I suppose they could be done by hand, but that'd apply to ETFs too). Vanguard is a big player in tracker OEICs, indeed they have more of those than they have ETFs.

From what I've seen, trackers are run on an automated basis, but they require human oversight. Partly this is because any bugs or errors in the programme must be detected and fixed. Partly because there is a need to manually respond to corporate actions and index constituent changes. And partly because of all the other work involved with running any fund e.g. accounting, reporting, proxy voting, compliance and regulatory submissions, and so on.

So there will still be a manager and a team, but for the most part they don't have to do very much, hence the low fees. The same team can run many ETFs and other funds. Once set up a tracker will naturally follow its index save for the special events mentioned above.

With some ETFs it can be a little different because there is not necessarily a physical portfolio underlying the fund. Rather the issuer creates and destroys units by selling to and buying from authorised participants and market makers. It is those intermediaries who have to hedge their units by buying and selling baskets of the underlying shares. The ETF issuer knows nothing about who actually holds the ETF, unlike a OEIC issuer. The ETF people focus entirely on the mechanics of the ETF, not marketing, communications etc. That is another reason why ETFs are so cheap (free in some cases now in the US).

It is arbitrage that keeps the ETF value close to to its relevant index. So in those very rare cases where an exchange is closed, that arbitrage can be impossible and the ETF can go to a discount in much the same way as an IT would. I can only recall that happening a couple of times, in emerging markets like Malaysia and Egypt. Of course in that situation an IT would also go to a discount, whilst a OEIC might have to do a Woodford :D

Vanguard US actually runs tracker OEICs and ETFs as two different fund classes of the same portfolio, so the distinction between them becomes almost moot. Vanguard UK doesn't do that as far as I am aware.

OhNoNotimAgain
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Re: Vanguard

#238492

Postby OhNoNotimAgain » July 22nd, 2019, 6:40 pm

tikunetih wrote:
UnclePhilip wrote:Once the proceeds of a house sale come, we'll have about 1/3rd of our equity investments in an actively managed Fisher Investments global fund (which we've held already for a couple of years, about 1/3rd in UK shares directly held, and about 1/3rd where I'm now looking for this global index fund with perhaps some bonds.



Is there a plan or a strategy behind the portfolio, or is it just a bunch of stuff?

How did you end up in the Fisher fund? Identified and chose it yourself, or were sold it?


Maybe I'm wrong, but from what you've written so far I get the sense it's a bit haphazard...


Most funds get selected on the basis of their advertising budgets.

OhNoNotimAgain
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Re: Vanguard

#238494

Postby OhNoNotimAgain » July 22nd, 2019, 6:51 pm

Lootman wrote:
mc2fool wrote:
Open Ended
- Managed by a person.

Not necessarily. "Tracker" OEICs that follow an index are almost certainly mechanised (although I suppose they could be done by hand, but that'd apply to ETFs too). Vanguard is a big player in tracker OEICs, indeed they have more of those than they have ETFs.

From what I've seen, trackers are run on an automated basis, but they require human oversight. Partly this is because any bugs or errors in the programme must be detected and fixed. Partly because there is a need to manually respond to corporate actions and index constituent changes. And partly because of all the other work involved with running any fund e.g. accounting, reporting, proxy voting, compliance and regulatory submissions, and so on.

So there will still be a manager and a team, but for the most part they don't have to do very much, hence the low fees. The same team can run many ETFs and other funds. Once set up a tracker will naturally follow its index save for the special events mentioned above.

With some ETFs it can be a little different because there is not necessarily a physical portfolio underlying the fund. Rather the issuer creates and destroys units by selling to and buying from authorised participants and market makers. It is those intermediaries who have to hedge their units by buying and selling baskets of the underlying shares. The ETF issuer knows nothing about who actually holds the ETF, unlike a OEIC issuer. The ETF people focus entirely on the mechanics of the ETF, not marketing, communications etc. That is another reason why ETFs are so cheap (free in some cases now in the US).

It is arbitrage that keeps the ETF value close to to its relevant index. So in those very rare cases where an exchange is closed, that arbitrage can be impossible and the ETF can go to a discount in much the same way as an IT would. I can only recall that happening a couple of times, in emerging markets like Malaysia and Egypt. Of course in that situation an IT would also go to a discount, whilst a OEIC might have to do a Woodford :D

Vanguard US actually runs tracker OEICs and ETFs as two different fund classes of the same portfolio, so the distinction between them becomes almost moot. Vanguard UK doesn't do that as far as I am aware.


Read the prospectus:

https://www.vanguardinvestor.co.uk/rs/g ... nts/941/gb

The Fund employs a “passive management” – or indexing – investment approach, through
physical acquisition of securities, designed to track the performance of the Index, a free float
adjusted market capitalisation weighted index. In tracking the performance of the Index, the Fund
attempts to replicate the Index by investing all, or substantially all, of its assets in the stocks that make
up the Index, holding each stock in approximately the same proportion as its weighting in the Index
and may therefore have exposure to or invest up to 20% of the Net Asset Value of the Fund in
stocks issued by the same body, which limit may be raised to 35% for a single issuer in
exceptional market conditions which may include the dominance of a particular issuer in the
relevant market.


Note the weasel words :

In tracking the performance of the Index, the Fund attempts to replicate the Index by investing all, or substantially all, of its assets in the stocks that make
up the Index, holding each stock in approximately the same proportion as its weighting in the Index


If it was all computerised Vanguard would not need to employ 17,600 people.

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Re: Vanguard

#238496

Postby Lootman » July 22nd, 2019, 7:09 pm

OhNoNotimAgain wrote:If it was all computerised Vanguard would not need to employ 17,600 people.

That is a very misleading statement because Vanguard runs a huge number of open-ended retail funds and institutional funds in the US, many of which are actively managed. The vast majority of those 17,600 folks are not working on index funds or ETFs.

Also in the US Vanguard does not use intermediaries, so there is a suitably large number of people who are client-facing.

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Re: Vanguard

#238530

Postby Muddywaters » July 22nd, 2019, 9:38 pm

I’m pretty sure that vanguard are actually the biggest active manager in the world in terms of FUM.

Julian
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Re: Vanguard

#238605

Postby Julian » July 23rd, 2019, 11:08 am

OhNoNotimAgain wrote:...

Note the weasel words :

In tracking the performance of the Index, the Fund attempts to replicate the Index by investing all, or substantially all, of its assets in the stocks that make
up the Index, holding each stock in approximately the same proportion as its weighting in the Index


If it was all computerised Vanguard would not need to employ 17,600 people.

On the second point first, I agree with Lootman's comment re the 17,600 people. That really isn't a huge number given Vanguard's size, the number of countries it operates in, etc. According to Wikipedia it had $5.3 trillion of funds under management as of Sep 2018 and was the largest provider of mutual funds and the second largest provider of ETFs in the world (with Blackrock being the biggest for ETFs - I don't expect those ranking to have changed in the last 10 months). Once you get to that size stuff like IT department, compliance, client services, marketing, product development etc become very large on a global basis not to mention people working on the funds that are actively mentioned as already mentioned by Lootman and those aren't just in the USA, e.g. 6 equity funds are explicitly marked active on the UK web site here (https://www.vanguardinvestor.co.uk/what ... e-products).

On the other part, just why are those "weasel words"? That's common practice for trackers. In fact I alluded to it in my earlier comment when I said that I look at "(charges, supplier reputation, sampling breadth, etc)" in considering a tracker. That last one, "sampling breadth", was referring to exactly this.

As I understand it for smaller funds trying to track an index with a huge number of components it is not always practical to hold every constituent where the costs of maintaining the correct proportions of all constituents at the frequency desired (ideally daily) might have a disproportionate effect on the charges and/or the smaller constituents, coupled with a smaller fund size, might make adjustment trades (as the fund size changes at the end of each day) unacceptably small.

I'm not sure if it's a legal requirement but Vanguard certainly disclose the information, e.g. for the one I mentioned in my last post The FTSE Dev World ex UK index has (or had at time of Vanguard's last declaration) 2,043 constituents and the Vanguard tracking fund for it contains 2,080 different stocks (https://www.vanguardinvestor.co.uk/inve ... _fund_link).

I confess that I'm not sure why the fund actually holds more stocks than are in the constituent index, maybe because of its global nature there are always things falling in and out of the index and this is some timing issue whereby purchases on newly-entered companies are made slightly before the disposals of stuff that has fallen out, or perhaps certain constituents are covered by holding shares listed on multiple markets. I'd actually be interested in knowing that answer if anyone can supply it.

For me as long as the sampling breadth looks to be at or close to 100% I am happy with it. If I saw a sampling breadth at 75% or lower I would start thinking that I should be looking for a bigger fund supplier that had the economies of scale (number of customers in that fund) to be able to afford a better sampling breadth or that I might be looking to track too esoteric an index if there was no other supplier with a sampling breadth that I was comfortable with.

- Julian

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Re: Vanguard

#238611

Postby JohnB » July 23rd, 2019, 11:37 am

The anti-tracker lobby have said the slavish ownership of exactly all members of an index opens opportunities for others to trade in companies as they enter and leave it, with the forced purchase and sale at disadvantageous prices. Vanguard presumably anticipate the index changes to mitigate that.

If interested, the thing to look for is 'tracking error', the inevitable deviation a fund from the index. Its a key way, other than cost, that trackers compete with each other. Vanguard's full market replication scores on well on this compared with smaller funds that need a synthetic selection, where you sample the market with a range of companies which you hope cover the bases.

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Re: Vanguard

#238643

Postby Alaric » July 23rd, 2019, 1:10 pm

JohnB wrote:The anti-tracker lobby have said the slavish ownership of exactly all members of an index opens opportunities for others to trade in companies as they enter and leave it, with the forced purchase and sale at disadvantageous prices. Vanguard presumably anticipate the index changes to mitigate that.


If you hold 7000 shares, price turbulence of the smallest components, those joining or leaving an index is probably not of a great concern. As suggested they may anticipate changes anyway.

OhNoNotimAgain
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Re: Vanguard

#238659

Postby OhNoNotimAgain » July 23rd, 2019, 2:27 pm

Julian wrote:
OhNoNotimAgain wrote:...

Note the weasel words :

In tracking the performance of the Index, the Fund attempts to replicate the Index by investing all, or substantially all, of its assets in the stocks that make
up the Index, holding each stock in approximately the same proportion as its weighting in the Index


If it was all computerised Vanguard would not need to employ 17,600 people.

On the second point first, I agree with Lootman's comment re the 17,600 people. That really isn't a huge number given Vanguard's size, the number of countries it operates in, etc. According to Wikipedia it had $5.3 trillion of funds under management as of Sep 2018 and was the largest provider of mutual funds and the second largest provider of ETFs in the world (with Blackrock being the biggest for ETFs - I don't expect those ranking to have changed in the last 10 months). Once you get to that size stuff like IT department, compliance, client services, marketing, product development etc become very large on a global basis not to mention people working on the funds that are actively mentioned as already mentioned by Lootman and those aren't just in the USA, e.g. 6 equity funds are explicitly marked active on the UK web site here (https://www.vanguardinvestor.co.uk/what ... e-products).

On the other part, just why are those "weasel words"? That's common practice for trackers. In fact I alluded to it in my earlier comment when I said that I look at "(charges, supplier reputation, sampling breadth, etc)" in considering a tracker. That last one, "sampling breadth", was referring to exactly this.

As I understand it for smaller funds trying to track an index with a huge number of components it is not always practical to hold every constituent where the costs of maintaining the correct proportions of all constituents at the frequency desired (ideally daily) might have a disproportionate effect on the charges and/or the smaller constituents, coupled with a smaller fund size, might make adjustment trades (as the fund size changes at the end of each day) unacceptably small.

I'm not sure if it's a legal requirement but Vanguard certainly disclose the information, e.g. for the one I mentioned in my last post The FTSE Dev World ex UK index has (or had at time of Vanguard's last declaration) 2,043 constituents and the Vanguard tracking fund for it contains 2,080 different stocks (https://www.vanguardinvestor.co.uk/inve ... _fund_link).

I confess that I'm not sure why the fund actually holds more stocks than are in the constituent index, maybe because of its global nature there are always things falling in and out of the index and this is some timing issue whereby purchases on newly-entered companies are made slightly before the disposals of stuff that has fallen out, or perhaps certain constituents are covered by holding shares listed on multiple markets. I'd actually be interested in knowing that answer if anyone can supply it.

For me as long as the sampling breadth looks to be at or close to 100% I am happy with it. If I saw a sampling breadth at 75% or lower I would start thinking that I should be looking for a bigger fund supplier that had the economies of scale (number of customers in that fund) to be able to afford a better sampling breadth or that I might be looking to track too esoteric an index if there was no other supplier with a sampling breadth that I was comfortable with.

- Julian


The cost of keeping a fund exactly in line with its designated index is simply too high to execute in practice. Trading every little change and the discretion required in corporate actions such as rights issue and takeovers, the Whitbread Dutch auction being the most recent example, would just be too expensive.
So these weasel words are used to get round the semantics of not following the index but seeking deliver the same returns. That can be done in an amazing variety of ways judging by some of the holdings disclosed in some of the annual reports.

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Re: Vanguard

#238666

Postby mc2fool » July 23rd, 2019, 2:57 pm

OhNoNotimAgain wrote:The cost of keeping a fund exactly in line with its designated index is simply too high to execute in practice. Trading every little change and the discretion required in corporate actions such as rights issue and takeovers, the Whitbread Dutch auction being the most recent example, would just be too expensive. So these weasel words are used to get round the semantics of not following the index but seeking deliver the same returns.

You mean like:

"The Fund aims to maximise overall returns by seeking to replicate the performance of the Freedom Smart-Beta UK Dividend Index." http://www.valu-trac.com/administration ... -12-31.pdf

"seeking to replicate the performance of" are the weasel words necessary 'cos the cost of keeping a fund exactly in line with its designated index is simply too high to execute in practice, right? Although I must say I am shock-ed to discover that:

"The Fund may also make other investments, including:
• bonds issued by companies, governments and other organisations,
• cash, deposits and money market instruments
The Fund may use derivatives to protect against market or currency movements.
"

:o :shock:

UnclePhilip
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Re: Vanguard

#241748

Postby UnclePhilip » August 5th, 2019, 8:16 am

I'm very grateful for all the help on this thread.

One thing that puzzles me; for someone with existing dealer accounts (equity ISAs with Charles Stanley and iWeb), is there any point in opening a Vanguard account rather than buying Vanguard global index trackers through existing accounts? Fee differences?

Looking through Vanguard's funds list, still a bit (ie much) confused regarding ETFs or ITs or OEICs....

Uncle

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Re: Vanguard

#241753

Postby Alaric » August 5th, 2019, 8:35 am

UnclePhilip wrote:Looking through Vanguard's funds list, still a bit (ie much) confused regarding ETFs or ITs or OEICs....


I don't think Vanguard offer any ITs. As a rule of thumb, where Vanguard directly track an index, it's an ETF. Where they offer a mix such as "Lifestyle" funds, they are OEICs.

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Re: Vanguard

#241790

Postby UnclePhilip » August 5th, 2019, 9:54 am

Thanks Alaric, I was imprecise, I meant it threw up the whole fund structure thingie....

I'd really like to see the fee cost comparison between buying Vanguard funds with Charles Stanley or iWeb versus opening a Vanguard account

Uncle

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Re: Vanguard

#241836

Postby xeny » August 5th, 2019, 12:38 pm

UnclePhilip wrote:Thanks Alaric, I was imprecise, I meant it threw up the whole fund structure thingie....

I'd really like to see the fee cost comparison between buying Vanguard funds with Charles Stanley or iWeb versus opening a Vanguard account

Uncle


I don't know the CS charing model, but a comparison between direct vs iWeb is going to depend hugely on trading behaviour vs portfolio size. The numbers are simple enough you should be able to put together a spreadsheet comparison for your actual circumstances pretty easily.

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Re: Vanguard

#241839

Postby mc2fool » August 5th, 2019, 12:54 pm

Alaric wrote:As a rule of thumb, where Vanguard directly track an index, it's an ETF.

Whose thumb? :D

If you go to https://www.vanguardinvestor.co.uk/what-we-offer/all-products and click Refine at the bottom and select (only) Index and then select between Mutual Fund (i.e. OEICs/UTs) and ETFs you'll find that they have 28 OEIC/UT index trackers (13 equity, 15 fixed income) and 22 ETFs (14 equity, 8 fixed income).

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Re: Vanguard

#241846

Postby DrBunsenHoneydew » August 5th, 2019, 1:19 pm

One small issue with ETFs is that they are often counted as "Foreign income" when dividends are paid, which potentially means extra effort in completing a Tax Return. Some ITs do this too.

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Re: Vanguard

#243577

Postby UnclePhilip » August 11th, 2019, 4:57 pm

Returning to this topic, there's one issue that confuses me, regarding fees

Looking to either buy Vanguard funds through my existing iWeb account, or open a Vanguard a/c

If I buy through iWeb, are there any fees deducted for Vanguard howsoever deducted? Or can I otherwise simply compare custody, entrance, dealing, exit fees between the two?

If I can, it seems iWeb is cheaper if investing substantial sums over £20K, and so not sure of value of opening a Vanguard a/c....

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Re: Vanguard

#243605

Postby xeny » August 11th, 2019, 6:58 pm

UnclePhilip wrote:If I can, it seems iWeb is cheaper if investing substantial sums over £20K, and so not sure of value of opening a Vanguard a/c....


iWeb is cheaper than holding direct with Vanguard if you trade infrequently - iWeb is £5/trade, Vanguard's ISA fee is .15%/year, but with no dealing fee.

If you're paying in your £20K over a year, starting from scratch (say if you're investing from income with 12 trades/year) then iWeb is going to be £60, Vanguard is going to be ~£15. If you're paying in less each month, then the differential will be greater.

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Re: Vanguard

#243617

Postby mc2fool » August 11th, 2019, 8:13 pm

UnclePhilip wrote:If I buy through iWeb, are there any fees deducted for Vanguard howsoever deducted? Or can I otherwise simply compare custody, entrance, dealing, exit fees between the two?

Well, of course there's Vanguard's management fee and costs for the fund, which you pay them indirectly, whichever way you buy/hold their funds, and are unavoidable.

There's no entrance and exit fees, unless you're counting the spread for UTs and ETFs, so, yes, you are basically down to comparing Vanguard's 0.15% (capped) custody fee with IWeb's £5 per trade, and plugging those into your expected usage patterns.


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