World Equity Index tracking funds

[TheMotorcycleBoy]

Hi all,

Myself and my husband are newbie investors, currently with about 24k to invest, of which we've currently allocated some of into equity (individual stocks) and corporate bonds. Further information as to our situation/goals etc. is that we are looking just for steady wealth accumulation with moderate risk, to try to build either a nest egg or an income supplement, to assist our pensions when we eventually retire. Once the above sum has been invested we are planning to continue adding between 3-6k each year.

Upon reading the odd book or two, our attention has been drawn towards the idea of a fund which merely tracks an index representative of all world equity. Whilst we are interested in stock picking, we'd like to put some of our cash into such a fund into get more diversification and to get buffering when any given sector/market tanks etc.

The problem for us is that there seems to be a bewildering array of fund types and classes etc. active, passive, ETFs, trackers etc. and whilst it would be interesting to discover what those different types are, at present we would really just like to select a low charge and reasonably diverse World index tracker and incorporate this into our existing investment ISA.

We have done some research already, and it seems that we want a fund that basically tracks the index described in this wiki:
https://en.wikipedia.org/wiki/MSCI_World

After googling we have discovered several different ones and we are drawn to the "Fidelity World Index". We wanted to get some more opinions about incorporating this into our portfolio.

Firstly, we can buy a "lump of" the said fund, e.g. 2k of, and add it to our existing IWeb stocks and shares ISA? And then continue to drip it as and when?

Or do we need to buy ETFs in order to add them to a generic stocks and shares ISA?

In need of enlightenment, Mel

[Alaric]

Firstly, we can buy a "lump of" the said fund, e.g. 2k of, and add it to our existing IWeb stocks and shares ISA? And then continue to drip it as and when?

Or do we need to buy ETFs in order to add them to a generic stocks and shares ISA?

What you can buy and how you buy it is going to be a function of your IWeb account. Presuming there's a research tab, just browse to see if you can find the type of fund you are interested in. It's only if IWeb don't offer it, or only offer it at a high price, that you look elsewhere.

The way that a stocks and shares ISA can be managed is that you put money into it (up to £ 20,000 a year each) when you can afford to do so. This you periodically convert from cash into "something else" depending on what range of investments are on offer and the terms on which you can buy or sell. It's usually commission that dictates whether you but funds or shares as so as the funds are available or wait until you have an amount such that a £ 10 commission isn't a high percentage of the amount being invested. Some Brokers will offer regular investment facilities at a much cheaper price.

[tjh290633]

Melanie, if you look at some of the global ITs, I think that you will find that index is used as their yardstick. I don't have the Annual Reports to hand, but I am fairly sure that both Witan and Foreign & Colonial do so. Both outperform their yardstick.

TJH

[greygymsock]

iweb will let you buy funds (such as fidelity index world) as well as shares, in the same account.

their research section is not always up to date on what you can buy. it's better to look in the "dealing" page (even if you're not ready to buy) ... in that page, switch to the "funds" tab, and then select the fund manager, then the fund (including fund class, and Acc or Inc).

you want the cheapest available class for the fund. for fidelity index world, i think that's class P, with on-going charges of 0.13%. there is a choice of Inc (which pays dividends) or Acc (which automatically reinvests them); most funds do give you this choice, but not all.

i think you've successfully found the cheapest available world tracker fund. note that it covers developed markets only; there are also trackers which cover developed and emerging markets, which some people would prefer (though not me).

if you want emerging markets included, i think the cheapest is HSBC FTSE all-world index, class C, with on-going charges of 0.16%.

or if you want emerging markets and also to include shares in smaller companies, there is Vanguard FTSE global all cap index fund, with charges of 0.24%.

or there are ETFs which do similar things, but i don't think there's much advantage using ETFs here, since charges are a fraction higher, and there is a difference between the prices to buy and sell (as there are for any shares); whereas the above funds are all single-priced.

iweb will charge £5 every time you buy or sell a fund (identical to their charges for ETFs or other shares). so you don't want to invest very small amounts at a time, or that becomes too large a percentage. i aim for a minimum of about £2000.

[TheMotorcycleBoy]

Melanie, if you look at some of the global ITs, I think that you will find that index is used as their yardstick. I don't have the Annual Reports to hand, but I am fairly sure that both Witan and Foreign & Colonial do so. Both outperform their yardstick.

TJH

iweb will let you buy funds (such as fidelity index world) as well as shares, in the same account.

their research section is not always up to date on what you can buy. it's better to look in the "dealing" page (even if you're not ready to buy) ... in that page, switch to the "funds" tab, and then select the fund manager, then the fund (including fund class, and Acc or Inc).

you want the cheapest available class for the fund. for fidelity index world, i think that's class P, with on-going charges of 0.13%. there is a choice of Inc (which pays dividends) or Acc (which automatically reinvests them); most funds do give you this choice, but not all.

i think you've successfully found the cheapest available world tracker fund. note that it covers developed markets only; there are also trackers which cover developed and emerging markets, which some people would prefer (though not me).

if you want emerging markets included, i think the cheapest is HSBC FTSE all-world index, class C, with on-going charges of 0.16%.

or if you want emerging markets and also to include shares in smaller companies, there is Vanguard FTSE global all cap index fund, with charges of 0.24%.

or there are ETFs which do similar things, but i don't think there's much advantage using ETFs here, since charges are a fraction higher, and there is a difference between the prices to buy and sell (as there are for any shares); whereas the above funds are all single-priced.

iweb will charge £5 every time you buy or sell a fund (identical to their charges for ETFs or other shares). so you don't want to invest very small amounts at a time, or that becomes too large a percentage. i aim for a minimum of about £2000.

Thanks!

Yes I think we'll look into purchasing 2-3k in the "fidelity index world class P" fund.

Mel

[TheMotorcycleBoy]

i think you've successfully found the cheapest available world tracker fund. note that it covers developed markets only; there are also trackers which cover developed and emerging markets, which some people would prefer (though not me).

Sorry I forgot to ask what actual markets are included by "fidelity index world class P", Do you or anyone else know?

e.g. is it

UK, US, Europe ex UK, Japan, Pacific ex Japan ? Are India and or/China included?

We won't necessarily rule it in or out on the above basis, more kind of curious as to what to watch (or not as case may be).

And "finally", anyone know what the class P bit means exactly?

thanks again, Mel

[dspp]

I think you might usefully look at VWRL as a Vanguard alternative.
https://www.vanguardinvestor.co.uk/inve ... -ucits-etf

With an OCF of 0.25% is it than the Fidelity one you are looking at ? Maybe not as it says 0.12% using Morningstar like-for-like comparisons:
http://www.morningstar.co.uk/uk/funds/s ... F00000SRPN
http://www.morningstar.co.uk/uk/etf/sna ... 0P0000WAHE

Worth comparing both of them to see if the differences matter to you. For sure private investors are fortunate to get such low fees from passive trackers these days.

regards,
dspp

[Alaric]

And "finally", anyone know what the class P bit means exactly?

Unlike ETFs and ITs on which all holders get charged the same, OEICs can and do have multiple levels of charges. class P is the label attached to the class available on your platform.

[GeoffF100]

Fidelity World Index contains all the developed markets at their market weights. If you want exposure to the emerging markets, you can add about 10% VFEM. Class P is Fidelity's cheapest retail fund class.

[TheMotorcycleBoy]

Thanks again, everyone...

Unlike ETFs and ITs on which all holders get charged the same, OEICs can and do have multiple levels of charges. class P is the label attached to the class available on your platform.

Ok, so, in a nutshell, is Fidelity World Index class P an OEIC (I will look this term up later) ?

Does class P thing just mean that it falls into a certain style of charging, and that this class just specifies the charging model or something? Sorry to seem a bit slow.

Fidelity World Index contains all the developed markets at their market weights. If you want exposure to the emerging markets, you can add about 10% VFEM. Class P is Fidelity's cheapest retail fund class.

I don't really know what countries exactly are the EMs. I was just curious as to whether India and China are included in FWI - I guess if they are not that must mean that they still classed as EMs, correct?

Mel

[GeoffF100]

The Fidelity fund is an OEIC. Class P means the OCF is lower than for the other classes of the fund. Class P is the one to buy.

Here is the info on the Fidelity fund:

https://www.fidelity.co.uk/factsheets?i ... arketCode=

I have not been able to find a full country breakdown for the MSCI World Index that it tracks. Vanguard always gives a full country breakdown, but the Vanguard alternatives for the fund are not so cheap.

Here is the info on VFEM:

https://www.vanguardinvestor.co.uk/inve ... folio-data

China and India are included. South Korea is not. The Vanguard emerging markets OEIC does contain South Korea, but you may get South Korea twice if you use that fund.

[greygymsock]

the wikipedia article linked to in the OP lists the 23 countries included in the MSCI World index. that's MSCI's opinion about which markets count as developed. FTSE are a rival index provider, and they define 24 markets as developed, by adding south korea.

if you find a tracker fund which follows the FTSE developed world index (which happens to cost a fraction more, anyway), then about 2% of the fund is in south korea.

with emerging markets, it is the other way round: MSCI emerging markets index includes south korea, FTSE emerging markets doesn't. in the MSCI emerging markets index, about 15% is in south korea (and it's the second largest country, after china). it's the difference between being a small fish in a big pond and a big fish in a small pond.

it's interesting to see how it works, but don't get too bothered about whether you include south korea or not. it won't make a huge difference.

[TheMotorcycleBoy]

The Fidelity fund is an OEIC. Class P means the OCF is lower than for the other classes of the fund. Class P is the one to buy.

Here is the info on the Fidelity fund:

https://www.fidelity.co.uk/factsheets?i ... arketCode=

Thanks again.

Mind you, I did follow the link and noted a loss between March 2017 and Mar 2018, i.e. total change of -0.16%. I know we had a big market correction in February of this year......so presumably the loss would have been worse were it not for the accumulative nature of the reinvested dividends.

[GeoffF100]

The loss would have been greater without dividends. Equities are very volatile, and that was an unfavourable starting point. The future return is very uncertain. If you buy at the top, it will be horrible. If you buy at the bottom, it will be great. We appear to be nearer the top than the bottom right now, but nobody knows what will happen next. Do not buy equities unless you can afford to lose the money, as the old saying goes.

[TheMotorcycleBoy]

The loss would have been greater without dividends. Equities are very volatile, and that was an unfavourable starting point. The future return is very uncertain. If you buy at the top, it will be horrible. If you buy at the bottom, it will be great. We appear to be nearer the top than the bottom right now, but nobody knows what will happen next. Do not buy equities unless you can afford to lose the money, as the old saying goes.

Well, yeah, we are in it for the long term. So the FWI class P is worth a punt for a few K.

Matt

[Hariseldon58]

The comparable Vanguard Developed world ETF is VEVE and costs .13% pa

It’s worth noting that performance figures for the fidelity fund is slightly negative for the year quoted ending 31 March 2018 but the Vanguard fund shows +14% for the same period, the difference is because it is quoted in dollars.

One needs to be aware that a World fund has significant exposure to foreign currency movements that can turn a good positive return into a slight loss when expressed in a different currency (Sterling) over time these things tend to even out though.

I would agree that the dealing in small sums is probably more cost effective in an OEIC. Until you get to a six figure sums a 0.05 % difference in charges is pretty insignificant.

[GeoffF100]

The comparable Vanguard Developed world ETF is VEVE and costs .13% pa

It’s worth noting that performance figures for the fidelity fund is slightly negative for the year quoted ending 31 March 2018 but the Vanguard fund shows +14% for the same period, the difference is because it is quoted in dollars.

One needs to be aware that a World fund has significant exposure to foreign currency movements that can turn a good positive return into a slight loss when expressed in a different currency (Sterling) over time these things tend to even out though.

I would agree that the dealing in small sums is probably more cost effective in an OEIC. Until you get to a six figure sums a 0.05 % difference in charges is pretty insignificant.

VEVE has an OCF of 0.18%:

https://www.vanguardinvestor.co.uk/inve ... -ucits-etf

You can plot Fidelity World Index P and VEVE of the same chart here:

http://www.morningstar.co.uk/uk/funds/s ... X59&tab=13

They match very closely, and with the MSCI World index. (You must be careful to ensure that the index is denominated in GBP and not USD.) There certainly is not a performance difference between the two funds of more than 14%, over any period. The Fidelity fund appears to be OK. The Vanguard funds are probably better, but I doubt that the extra cost is justified here.

[LooseCannon101]

I have been investing in Foreign and Colonial Investment Trust (ticker - FRCL) for the past 20 years and would thoroughly recommend this to someone like you who needs an uncomplicated investment strategy. FRCL has delivered 9% per annum on average over the past 20 years. The phrase 'on average' must be understood as the ride is far from smooth. It feels like a big dipper at times!

'Pound cost averaging' where you invest a set amount per month over many years and re-invest dividends, actually works and is not just a marketing ploy by the wealth management industry. I am a big fan of FRCL - cheap ISA savings plan (£72 per year which includes monthly payments and dividend re-investment), excellent long-term performance beating its benchmark (World Equity Index), low borrowings, highly diverse e.g. 350+ holdings, and directors / fund manager who also have substantial stakes in the trust.

[GeoffF100]

Perhaps I should add that the Fidelity and Vanguard funds track slightly different indices. There may also be differences in the times at which the valuations take place. In the case of the Vanguard ETF, it is not clear whether Morningstar uses the NAV or the market price. Historical prices for ETFs on the likes of Yahoo can be very flaky in my experience. Vanguard gives the tracking error, but I could not find it for Fidelity. As I said before, Fidelity does not give full country breakdown either. Fidelity uses up to 3% derivatives too. I am more impressed with Vanguard, but I do not think there is much wrong with the Fidelity fund.

[Stanley117]

I have been investing in Foreign and Colonial Investment Trust (ticker - FRCL) for the past 20 years and would thoroughly recommend this to someone like you who needs an uncomplicated investment strategy. FRCL has delivered 9% per annum on average over the past 20 years. The phrase 'on average' must be understood as the ride is far from smooth. It feels like a big dipper at times!

How does the total return from FRCL compare to a cheap world index tracker or Vanguard VWRL etf ?

To invest a lump sum would cost 0.2% Dealing plus stamp duty. I assume this would be cheaper on a platform like iWeb ?