Vanguard

[UnclePhilip]

I am currently contemplating moving some of my investments to a global index tracking fund

From the little I've read, Vanguard seem to be a reasonably low fee vehicle with a good reputation

Can someone point me to where I can find out a bit more, please? ie:

(i) What's the pros/cons of OEICs, UTs, ITs, ETFs??

(ii) Best bought through existing brokers (Charles Stanly, iWeb) rather than through Vanguard?

Feeling naive....

UnclePhilip

[monabri]

I found the Pensioncraft youtube videos on VG really useful in understanding the various funds. Here's one of the short 15mins videos but I'd suggest a peruse of all of their videos.

https://youtu.be/tHvlU1WGjpU

Pensioncraft have collated a free download book on the VG funds ...its an easy read.

[JohnB]

For an index tracker you are talking OEIC (often called a fund) and an ETF. Funds can be accumulating (dividends automatically reinvested) or income (dividends paid out). The former is less work for invest and forget in pensiosns/ISAs, but a pain for taxed investments, where its much easier to calculate tax on payours. ETFs tend always to pay out dividends

The surprising difference is that brokers can charge different custody charges for each. ETFs tend to be lumped with shares, and can have zero or low custody charges, capped at a few hundred pounds a year, while funds can be charged much more, often more than fund runners them themselves charge.

Vanguard as fund managers are good, but there is no problem with their rivals iShares etc, really

Vanguard as brokers are competitive for fees with other brokers, but you can hold their ETFs with other brokers for nothing.

If you can say whether you are investing in ISA/SIPP/unsheltered, and whether its a lump sum or regular payments, I can say more

[monabri]

Link to the e-book download. I receive the weekly news from Pensioncraft. The link is on the RHS , halfway down the page.

https://pensioncraft.com/how-i-invested-20k/

"Learn how to build a diversified portfolio with Vanguard Funds. Includes a description of 18 Vanguard ETFs, how to diversify, asset allocation strategies & more."

[UnclePhilip]

I found the Pensioncraft youtube videos on VG really useful in understanding the various funds. Here's one of the short 15mins videos but I'd suggest a peruse of all of their videos.

https://youtu.be/tHvlU1WGjpU

Pensioncraft have collated a free download book on the VG funds ...its an easy read.

Thanks a lot for this monabri, I'll have a look at these!

Uncle

[UnclePhilip]

For an index tracker you are talking OEIC (often called a fund) and an ETF. Funds can be accumulating (dividends automatically reinvested) or income (dividends paid out). The former is less work for invest and forget in pensiosns/ISAs, but a pain for taxed investments, where its much easier to calculate tax on payours. ETFs tend always to pay out dividends

The surprising difference is that brokers can charge different custody charges for each. ETFs tend to be lumped with shares, and can have zero or low custody charges, capped at a few hundred pounds a year, while funds can be charged much more, often more than fund runners them themselves charge.

Vanguard as fund managers are good, but there is no problem with their rivals iShares etc, really

Vanguard as brokers are competitive for fees with other brokers, but you can hold their ETFs with other brokers for nothing.

If you can say whether you are investing in ISA/SIPP/unsheltered, and whether its a lump sum or regular payments, I can say more

Thank you JohnB; a lump sum, about half ISA and a half not (from imminent sale of property)

Uncle

[JohnB]

So transaction costs and timing aren't an issue. If you invest in tracker ETFs with iWeb like me you won't pay any custody feeds for ETFs, just a trivial £25 joining fee. Consider Vanguard, Fidelity and iShares for trackers. You'll see the global trackers tend to have higher internal costs than regional trackers, so you could save a little by making up your own global tracker from a bit of each region.

[UnclePhilip]

So transaction costs and timing aren't an issue. If you invest in tracker ETFs with iWeb like me you won't pay any custody feeds for ETFs, just a trivial £25 joining fee. Consider Vanguard, Fidelity and iShares for trackers. You'll see the global trackers tend to have higher internal costs than regional trackers, so you could save a little by making up your own global tracker from a bit of each region.

So what structure are Vanguard Funds? ETFs or something else? (something else I need to catch up on I suppose, having held shares directly for so long....)

Uncle

[JohnB]

Vanguard and the others do both OEICs and ETFs

[mc2fool]

So transaction costs and timing aren't an issue. If you invest in tracker ETFs with iWeb like me you won't pay any custody feeds for ETFs, just a trivial £25 joining fee. Consider Vanguard, Fidelity and iShares for trackers. You'll see the global trackers tend to have higher internal costs than regional trackers, so you could save a little by making up your own global tracker from a bit of each region.

So what structure are Vanguard Funds? ETFs or something else? (something else I need to catch up on I suppose, having held shares directly for so long....)

Vanguard have both ETFs and OEICs, but IWeb don't have custody fees for either.

For Vanguard's offerings start here: https://www.vanguardinvestor.co.uk/what-we-offer/all-products

[Muddywaters]

I personally wouldn’t buy etf’s/funds direct even if it does work out marginally cheaper. You never know what’s round the corner and I’d rather have the option of investing outside of that provider. Even if I never actually end up doing that.

[UnclePhilip]

My thanks to all who have helped here; appreciated!

I must say that trying to understand the differences between, and relative advantages of, 'unit trust', 'ETF', 'OEIC', 'mutual fund' is a bit mind-numbing

I'm looking at global index funds mainly (either simply global or put together with different regional funds), possibly with some bonds. Do you think there's any real advantage in going for one particular structure, or is it all much of a muchness?

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.

I find it amusing to see how one's views evolve. A couple of decades ago it was investment property and UK shares. Now, significantly older and rendered weaker by the nuisance of life-limiting medical travails, it feels good to have a more profoundly passive position....

Uncle

[Alaric]

I must say that trying to understand the differences between, and relative advantages of, 'unit trust', 'ETF', 'OEIC', 'mutual fund' is a bit mind-numbing

"OIEC" and "unit trust" are more or less the same, OEIC being an updated legal framework. ETF is something more recent, being a fund that holders can trade continuously rather than once a day as with OEICs. In the context in which you are probably seeing it, "mutual fund" is an American term for their equivalents of OEICs and ETFs.

[monabri]

Some views as I understand 'em. Please feel free to correct/add to as this would help my understanding.

Investment Trusts
- Managed by a person or person(s). Someone has to pay for the running costs (salaries/research/office etc) so they tend to have higher ongoing charges (compared to ETFs). This is the hurdle they have to overcome before making money.
- run like mini companies with managers and a board. They tend to produce glossy annual reports.
- the fund has a fixed number of shares. So, if the fund is popular (Mr Train, looking at you!) then they can trade on a premium to the underlying assets (Net Asset Value or NAV). Conversely, if the fund is unpopular, they might trade at a discount to the underlying assets.
- You buy whole number of shares.
- You can buy/sell in an instant when the markets are open
- performance of the fund is measured against an index, such as the FTSE100 as an example (there are thousands of man-made indices so one would have to check the purpose/objective of the fund)
- funds can be geared. They can borrow money to try to amplify gains (but it can go wrong if they borrow and the investment doesn't go as planned).
- Main point of reference for ITs is the Association of Investment Trusts (AIC).
- Dividends can be paid from income (if they own shares in BP, they get an income just like you and I might) - or from Capital where they sell shares to generate cash to pay the dividend. The risk is that shares prices fall (assets under management - AUM) and they have to sell more shares than expected or reduce the dividend (a recent example being European Assets Trust- EAT where the AUM fell and they cut the divi).
- ITs have been around "a long time" and many have a good pedigree of paying dividends (cue argument: "dividends have risen but only very slowly just so the fund can claim 50+ years of unbroken, rising dividend increases").
- the manager decides what goes in to the fund and in what percentage. They might decide to overweight a stock because they feel it has potential. Conversely, they might decide not to buy a stock - they chose.

Open Ended
- Managed by a person.
- there is not a fixed number of shares..it's "open ended". Hence there is no premium/discount.
- You can't buy or sell at a moments notice (see Alaric's comment above). You put a buy/sell order in and it gets "executed" at the next trade point (which might be the next day at lunchtime). Consequentially, there is that risk between you placing your order to buy or sell. If the price drops, then it is in your favour.
- You can buy fractions of a share in a company.
- (Q: is there often "initial charges" on these funds of perhaps 5% which is why they were sold to the "punters").


Exchange Traded Funds (ETF)
- Can be managed by a person but usually by a computer - consequently the charges are generally much cheaper than an IT.
- You can buy/sell in an instant when the markets are open (as they are funds that are traded on an exchange - clue in the title!).
- Big players are Vanguard/iShares.
- Content of the funds is not chosen or managed by a person - the computer decides. If a share is "hot" then it will be added. If a stock is "cold" then it will be dumped. A manager might decide to keep something on board as they believe the blip is temporary.
- Fund replicate the market index and then try to track it.

[JohnB]

With ETFs you can't buy fractional units. This is becoming a nuisance for various index trackers where a unit is £200 odd, so you can be left with quite large sums left over. Not a problem for the OP with their house proceeds.

[Alaric]

- performance of the fund is measured against an index, such as the FTSE100 as an example (there are thousands of man-made indices so one would have to check the purpose/objective of the fund)

That applies to any fund, or not, rather than specifically ITs.

One extra "advantage" of ITs is that they can have a very specialist investment remit which the closed end structure permits. But if you don't want a specialist, check the AIC sector.

[mc2fool]

Investment Trusts
- Main point of reference for ITs is the Association of Investment Trusts (AIC).

Association of Investment Companies. https://www.theaic.co.uk/ (Not all investment companies are investment trusts, which is a specific UK legal & tax status)

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.

Exchange Traded Funds (ETF)
- Fund replicate the market index and then try to track it.

They most often replicate an index, although it may be an index that the provider has invented themselves, e.g. IUKD, or may just follow a "quantitative model", e.g. VMVL

[Julian]

When I first started branching out into index trackers I found my choices constrained by what I wanted to track. e.g. for my first tracker I wanted to get global equity exposure but not increase my UK weighting since I already had a sizeable HYP of FTSE 100 shares. I ended up deciding that I wanted to track the "FTSE Developed World Exc UK index" and at the time (no idea if it is still the case) the only vehicle I could find to do that was a Vanguard non-ETF fund.

Now if the index I want to track is available in both OEIC and ETF form and there is little or nothing between the two options based on other factors (charges, supplier reputation, sampling breadth, etc) I would go for the ETF (a) because of the ability to trade it using a nominee broker's regular trading interface (limit/market/etc orders) and (b) although as already pointed out iWeb amongst others has no additional custody fees for holding OEICs some brokers do and they can be non-trivial. Only having ETFs is one less thing to worry about if one is forced to look for a new broker in the future due to one's current broker being taken over, hiking fees, or some other issue arising that precipitates a change of broker.

- Julian

[tikunetih]

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...

[tjh290633]

With ETFs you can't buy fractional units. This is becoming a nuisance for various index trackers where a unit is £200 odd, so you can be left with quite large sums left over. Not a problem for the OP with their house proceeds.

Many funds or shares in this situation would subdivide their shares or units to make them more easily traded. Alliance Trust, for example, did this some years ago.

TJH