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Lifetime ISA portfolios

Index tracking funds and ETFs
hiriskpaul
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Lifetime ISA portfolios

#132016

Postby hiriskpaul » April 13th, 2018, 6:11 pm

I set up Lifetime ISAs for my 3 daughters at the end of the financial year and topped up this. We did this after quite a bit of discussion as there are potential downsides to these compared to say SIPPs. Went for Youinvest in the end as they seem to be the cheapest, and bought the following Vanguard ETFs through regular dealing (£1.50 per trade):

North America VNRT     25%
Europe, inc UK VEUR 25%
Emerging markets VFEM 25%
Japan VJPN 12.5%
Asia/Pacific VAPX 12.5%


The thinking behind this is partially that US shares are really expensive compared to the other markets, so we have heavily cut the allocation. EM and Pacific shares have faster earnings growth than in the US, but trade on much lower valuations. If you believe CAPE has any chance of being right that must mean EM/Pacific has a higher chance of beating the US in long term growth. This is also a simple and neat allocation with a four way split between the various major regions. It is just a shame that Vanguard do not do a Pacific including Japan ETF. They do have a US listed one, but unfortunately not LSE. European shares are not showing great earnings growth, but at least they are on much lower valuations than the US.

We are now waiting for the £2k bung from the government and are thinking of putting it into the Vanguard value fund VVAL. Or perhaps splitting into a global value fund and a global small cap fund.

As these investments have a very long term horizon (we decided against withdrawing for property purchase) there are no bonds - just all out risk with charges as low as we could practically get them. Weighted TER is 0.169% and as they are broad cap weighted ETFs, turnover costs should be negligible. Not as cheap as I would have liked, but hopefully Vanguard will bring the TERs down over time.

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Re: Lifetime ISA portfolios

#132045

Postby GeoffF100 » April 13th, 2018, 8:48 pm

Very interesting. I have a feeling that the US market is overpriced too. My UK portfolio has been edging forward against the world index over the last month, so perhaps a slip is starting. I have more or less got to track world ex UK for my overseas holdings, because the are fire and forget outside a tax shelter. I guess I could miss out the US in my tax free accounts though.

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Re: Lifetime ISA portfolios

#132058

Postby JohnB » April 13th, 2018, 9:58 pm

I'd not have split £4k 5 ways, just for the dealing costs and muddle. I got my nephews to invest in the FTSE Blackrock all-share tracker fund with HL. No transaction charges, and while the .45% custody charge is not capped for funds, I'll get them to switch to ETFs when they have the 10k+ when it starts to matter in a year or two. We were all keener on lump sums than regular investing.

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Re: Lifetime ISA portfolios

#132069

Postby Stanley117 » April 14th, 2018, 12:05 am

hiriskpaul wrote:We are now waiting for the £2k bung from the government and are thinking of putting it into the Vanguard value fund VVAL. Or perhaps splitting into a global value fund and a global small cap fund.


To date I believe VVAL has underperformed VEVE but they say things are changing now.
For a possible small cap allocation would you consider an open end fund, investment trust or a global ETF such as 'SSGA SPDR ETFs Europe I plc MSCI World Small Cap UCITS ETF (WOSC)' ?

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Re: Lifetime ISA portfolios

#132131

Postby hiriskpaul » April 14th, 2018, 11:27 am

JohnB wrote:I'd not have split £4k 5 ways, just for the dealing costs and muddle. I got my nephews to invest in the FTSE Blackrock all-share tracker fund with HL. No transaction charges, and while the .45% custody charge is not capped for funds, I'll get them to switch to ETFs when they have the 10k+ when it starts to matter in a year or two. We were all keener on lump sums than regular investing.

It was actually £8k per account, £4k deposited last financial year, £4k this. The 5 trades cost £1.50 each, so altogether purchase cost slightly less than 0.1%. The alternative was a world tracker, which would have lowered the purchase cost, but would then have cost £1.50 to sell at some point, so the saving in fixed cost would have been £4.50. Overall we decided to start off with the long term allocation we wanted even though it did cost a little more, about 0.06%. Youinvest custody charge is 0.25% per year, but for ETFs this is capped at £30, so the cap kicks in above £12k of assets. This means that next year, when another £5k goes in, the effective rate for the custody charge should be below 0.25%.

It would be great if iWeb introduced a Lifetime ISA so we could avoid the custody charge, but so far they show no sign of doing so. For the moment though Youinvest have lower dealing prices, provided the regular dealing facility is used.

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Re: Lifetime ISA portfolios

#132137

Postby hiriskpaul » April 14th, 2018, 11:59 am

Stanley117 wrote:To date I believe VVAL has underperformed VEVE but they say things are changing now.
For a possible small cap allocation would you consider an open end fund, investment trust or a global ETF such as 'SSGA SPDR ETFs Europe I plc MSCI World Small Cap UCITS ETF (WOSC)' ?

Value investing has been in the doldrums for quite a few years. The media chatter these days is all about growth/quality as companies such as Amazon, and growth funds, have performed well. Going for VVAL is very much a contrarian investment right now and a punt that over the long term value will outperform growth again.

Vanguard post some interesting stats on VVAL comparing with the benchmark, FTSE developed world index:

Fundamentals            Fund     Benchmark
Number of stocks 1,203 5,655
Median market cap 11.0 B 47.5 B
Price/earnings ratio 8.9 x 17.8 x
Price/book ratio 1.2 x 2.2 x
Return on equity 8.8% 13.3%
Earnings growth rate 9.2% 8.4%

VVAL is clearly widely diversified, but is in some very unloved companies such as the banks. P/e and p/b are close to half that of the world market, but the companies have higher historical earnings growth rates. Return on equity is not great, but to be expected for these sorts of companies. I like the fact that the median market cap is around a quarter that of the benchmark, so there is a tilt to smaller caps here as well which may negate the need for more explicit exposure to small caps for now. Charges are reasonable for a developed world fund at 0.22%, although costs due to portfolio turnover will be considerably higher than that for a developed world tracker.

hiriskpaul
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Re: Lifetime ISA portfolios

#132140

Postby hiriskpaul » April 14th, 2018, 12:17 pm

Some stats on various markets, courtesy of vanguard:

Market    Median mkt cap  Earnings gwth    p/e    p/b     ROE
US $68.2 B 8.5% 21.8x 3.0x 15.0%
Europe $41.5 B 5.1% 14.5x 1.8x 11.8%
Pacific $19.4 B 12.7% 13.8x 1.4x 10.1%
Emerging Markets $17.2 B 11.5% 15.6x 1.9x 15.6%

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Re: Lifetime ISA portfolios

#132145

Postby GeoffF100 » April 14th, 2018, 12:51 pm

Transaction costs for VVAL are given as 0.13%:

https://www.vanguardinvestor.co.uk/cont ... s-2018.pdf

That makes a total of 0.22% + 0.13% = 0.35%. I cannot say I am keen on all those banks. For comparison, Vanguard Global Small Cap is 0.4% + 0.11% = 0.51%. Ouch.

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Re: Lifetime ISA portfolios

#132260

Postby Stanley117 » April 15th, 2018, 12:16 am

hiriskpaul wrote:
North America VNRT     25%
Europe, inc UK VEUR 25%
Emerging markets VFEM 25%
Japan VJPN 12.5%
Asia/Pacific VAPX 12.5%



Is VNRT worth the extra cost over VUSA for a few more 150 more shares ?

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Re: Lifetime ISA portfolios

#132264

Postby ap8889 » April 15th, 2018, 1:18 am

I went 100% Vanguard LifeStrategy 100 for my LISA. Still waiting for the government wedge to show up. Not happy.

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Re: Lifetime ISA portfolios

#132284

Postby Stanley117 » April 15th, 2018, 7:52 am

ap8889 wrote:I went 100% Vanguard LifeStrategy 100 for my LISA. Still waiting for the government wedge to show up. Not happy.


Which platform did you use ?

I understand you can either use a LISA towards the deposit on a house or for retirement?

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Re: Lifetime ISA portfolios

#132285

Postby ap8889 » April 15th, 2018, 8:15 am

Youinvest. I am a massive Youinvest fan, it's not their fault the LISA scheme was ill-thought out by Government and has so far taken nine months and counting to deliver the bonus.

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Re: Lifetime ISA portfolios

#132327

Postby DrBunsenHoneydew » April 15th, 2018, 12:35 pm

ap8889 wrote:Youinvest. I am a massive Youinvest fan, it's not their fault the LISA scheme was ill-thought out by Government and has so far taken nine months and counting to deliver the bonus.

The rules are clear enough - The first year's bonus will be added to your account in May 2018. But in this tax year, the bonus is paid monthly (if you've contributed that month).

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Re: Lifetime ISA portfolios

#139722

Postby Cookie » May 17th, 2018, 10:09 pm

hiriskpaul wrote:
JohnB wrote:I'd not have split £4k 5 ways, just for the dealing costs and muddle. I got my nephews to invest in the FTSE Blackrock all-share tracker fund with HL. No transaction charges, and while the .45% custody charge is not capped for funds, I'll get them to switch to ETFs when they have the 10k+ when it starts to matter in a year or two. We were all keener on lump sums than regular investing.

It was actually £8k per account, £4k deposited last financial year, £4k this. The 5 trades cost £1.50 each, so altogether purchase cost slightly less than 0.1%. The alternative was a world tracker, which would have lowered the purchase cost, but would then have cost £1.50 to sell at some point, so the saving in fixed cost would have been £4.50. Overall we decided to start off with the long term allocation we wanted even though it did cost a little more, about 0.06%. Youinvest custody charge is 0.25% per year, but for ETFs this is capped at £30, so the cap kicks in above £12k of assets. This means that next year, when another £5k goes in, the effective rate for the custody charge should be below 0.25%.

It would be great if iWeb introduced a Lifetime ISA so we could avoid the custody charge, but so far they show no sign of doing so. For the moment though Youinvest have lower dealing prices, provided the regular dealing facility is used.


Sell cost is normal dealing charge not £1.50, £1.50 is only to buy

hiriskpaul
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Re: Lifetime ISA portfolios

#139723

Postby hiriskpaul » May 17th, 2018, 10:27 pm

Yes, £9.95 to sell. I am not anticipating that happening for 30+ years though!

£1k bonus turned up in each account in time to do "regular" £1.50 purchases of Vanguard Global Value Factor ETF on 10 May. Waiting for the other £1k now, which I think is due at the end of May. That the will be invested the same way.

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Re: Lifetime ISA portfolios

#139735

Postby Cookie » May 18th, 2018, 2:58 am

hiriskpaul wrote:Yes, £9.95 to sell. I am not anticipating that happening for 30+ years though!

£1k bonus turned up in each account in time to do "regular" £1.50 purchases of Vanguard Global Value Factor ETF on 10 May. Waiting for the other £1k now, which I think is due at the end of May. That the will be invested the same way.


I received first £1k too, just looking for 2nd £1k from this tax year

hiriskpaul
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Re: Lifetime ISA portfolios

#139811

Postby hiriskpaul » May 18th, 2018, 12:13 pm

Change of plan for next £1k bonus. Decided to go for a relatively new ETF, launched 27/03/18, WLDS (iShares MSCI World Small Cap). OCF is 0.35%, but iShares may make additional revenue for the fund through stock lending, e.g. the MSCI USA Small Cap shows a 0.06% stock lending return, but much larger returns in other markets - I would guess that they should be able to make around 0.15%.

Vanguard have an OEIC that follows the same index and here are some of the index characteristics:

Fundamentals            Fund    Benchmark
Number of stocks 4,313 4,273
Median market cap 2.1 B 2.1 B
Price/earnings ratio 17.0 x 16.9 x
Price/book ratio 1.9 x 1.9 x
Return on equity 9.1% 9.1%
Earnings growth rate 12.3% 12.3%


Median market cap is quite a lot smaller than the 11 B of VVAL, but does not have the value tilt. Despite the name, the index is dominated by FTSE 250 sized mid cap companies.

As the ETF is cap weighted, turnover costs should not be too high. Vanguard provide a figure of 0.11% for their OEIC. Estimated total running costs is then 0.35% fee + 0.11% turnover - 0.15% stock lending = 0.31%. I don't think there are any other LSE listed global small cap ETFs with a lower running cost.

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Re: Lifetime ISA portfolios

#140542

Postby GeoffF100 » May 22nd, 2018, 1:56 pm

The corresponding numbers for the Vanguard All Cap Index fund are:

5,752
30.6 BN
17.1 x
2.2 x
13.5%
9%

The valuation is not much higher, and the risk should be less. I doubt whether the small caps are a bargain here. However, their returns do not appear to be strongly correlated with those of the larger caps, so perhaps adding some small caps will increase the risk adjusted return.

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Re: Lifetime ISA portfolios

#151505

Postby hiriskpaul » July 10th, 2018, 3:52 pm

The £1,000 LISA bonus for this year turned up at the end of June, along with some dividends. This was invested today using Youinvest's cheaper "regular" dealing service. In the end I chose VVAL again as the iShares small cap ETF is not yet available for regular dealing. I will add small caps next year.

I took a snapshot of the valuations this morning and they looked like this:

Investment                                              Quantity  Price  Value (£)   Cost (£)  Change (£)  Change (%)
Vanguard FTSE Dev Asia Pac exJpn ETF GBP (LSE:VAPX) 52 19.5855 1,018.45 991.14 27.31 2.76
Vanguard FTSE Developed Europe ETF GBP (LSE:VEUR) 76 26.935 2,047.06 1,975.64 71.42 3.62
Vanguard FTSE Emerging Markets ETF GBP (LSE:VFEM) 44 43.701 1,922.84 1,957.47 -34.63 -1.77
Vanguard FTSE Japan ETF GBP (LSE:VJPN) 43 23.1725 996.42 979.66 16.76 1.71
Vanguard FTSE North America ETF GBP (LSE:VNRT) 43 52.07 2,239.01 1,997.13 241.88 12.11
Vanguard Global Value Factor ETF USD Acc GBP (LSE:VVAL) 81 26.892 2,178.25 2,151.32 26.93 1.25
Cash GBP 21.59 21.59


Total value £10,423.62, so 4.2% up by pure dumb luck (or £2,423.62 up from the £8k subscribed), which is a good start. Total dealing charges came to £9 . The weighted average OCF is 0.18% and there is another 0.25% custody charge by YI, although that is capped at £7.50 per quarter so should gradually reduce in percentage terms.


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