The Lemon Fool

mc2fool wrote:The reason is to avoid forex. VWRL introduces forex drag. With VWRL you are using GBP to buy a US$ assets, hence there is forex, even though it's opaque to you.

VWRL in and of itself will not introduce forex drag. VWRD and VWRL are both denominated in USD, but it does not necessarily follow that trading VWRL in GBP generates a forex drag. Both are facets of a single basket of global holdings, but with different trading currencies.

A fund's denomination currency is simply an accounting device. You could denominate it in anything -- USD, JPY, Zimbabwean Dollars, Mars Bars, buttons -- and the only currency effect that matters is the one between the investor's home currency, GBP in this case, and the currency of the assets that the ETF holds internally. When you buy VWRL (or VWRD) you are are not buying "a US$ asset", you are buying a whole heap of JPY, EUR, GBP, USD, and so on assets, and whose aggregate current yardstick just happens to be the USD.

mc2fool wrote:You are making a big assumption, that UK investors always trade in £££s, but that's just not necessarily so. ...

Thank you. That is the justification I was looking for. These would certainly be a minority of investors, but for anyone who currently holds USD, wishes to stay in USD and not convert to GBP, and would like a world tracker ETF, buying VWRD makes sense. That route would avoid unwanted forex drag converting USD to GBP.

For anyone not already holding USD though, converting GBP to USD purely to then trade VWRD rather than VWRL would add forex drag that isn't there otherwise.

mc2fool wrote:Well now you know a reason but you (and possibly Vanguard too, if Greg's theory is correct) seem to be assuming that UK investors are dumb and need protecting from themselves. ... After all, iShares do it.

Please do not put words into my mouth. And iShares is not a retail portal, so the comparison is not valid.

TedSwippet wrote:When you buy VWRL (or VWRD) you are are not buying "a US$ asset", you are buying a whole heap of JPY, EUR, GBP, USD, and so on assets, and whose aggregate current yardstick just happens to be the USD.

The underlying investments themselves are 53% USD and the ETF itself from the investors' aspect is a USD one. The clue is in the name: FTSE All-World UCITS ETF (USD) Distributing (VWRL).

iShares is not a retail portal, so the comparison is not valid.

Both the iShares and Vanguard sites are providing information for, inter alia, individual investors, so it really is a valid comparison from that aspect.

If you are arguing that the Vanguard site shouldn't include VWRD because it is also a broker/platform and shouldn't allow its clients to buy VWRD, would you also say other retail brokers should also not allow their clients to buy it too? I suspect not....

mc2fool wrote:The underlying investments themselves are 53% USD and the ETF itself from the investors' aspect is a USD one. The clue is in the name: FTSE All-World UCITS ETF (USD) Distributing (VWRL).

All true, but this does not mean that VWRL introduces any additional forex drag in the way you originally claimed.

If it did, this drag would show up as a larger round-trip buy-and-sell difference than that for VWRD. Yet the bid/offer spreads for both VWRL and VWRD are the same (as far as can be computed within the rounding of their prices to two decimal places). The bid/offer as I write is currently £63.90/£63.96 for VWRL, and $81.97/$82.06 for VWRD.

If you are arguing that the Vanguard site shouldn't include VWRD because it is also a broker/platform and shouldn't allow its clients to buy VWRD, would you also say other retail brokers should also not allow their clients to buy it too? I suspect not....

Nope. I'm not arguing that, and never have. Again, do not put words into my mouth. I said I could see no reason for it, and you gave one. Thank you.

I suggest you also dial back on the snark.

TedSwippet wrote:

mc2fool wrote:If you are arguing that the Vanguard site shouldn't include VWRD because it is also a broker/platform and shouldn't allow its clients to buy VWRD, would you also say other retail brokers should also not allow their clients to buy it too? I suspect not....

Nope. I'm not arguing that, and never have. Again, do not put words into my mouth.

I suggest you also dial back on the snark.

"Snark"? As in the hunting of? Not sure what you mean there.

I'm not putting words into your mouth, I am trying to understand your point and I didn't say what you were saying but asking that if you are arguing that the Vanguard site shouldn't include VWRD because it is also a broker/platform, and asked a logical follow on question if that was the case.

Ok, so if you are not arguing that the Vanguard site shouldn't include VWRD because it is also a broker/platform then perhaps you can clarify what you meant by "iShares is not a retail portall, so the comparison is not valid.".

mc2fool wrote:the Vanguard site shouldn't include VWRD because it is also a broker/platform then perhaps you can clarify what you meant by "iShares is not a retail portal, so the comparison is not valid.".

The reason that Barclays Global Investors (as it was then; Blackrock since 2009) introduced the iShares brand in 2000 was that it had previously been a purely institutional fund manager, but wanted to enter the retail space. Unlike Vanguard, it did not have any retail infrastructure nor any desire to deal with millions of individual investors and all the record-keeping, reporting and compliance issues that go with that. So an ETF was perfect since it has a focus on managing the fund but effectively outsources the people-facing obligations to others (brokers and platforms). For that matter it even outsources the tracking fidelity to others - market participants who use arbitrade to keep prices tightly aligned.

This compares with Vanguard who came at ETFs from the opposite direction, having a vast retail infrastructure. They never used intermediaries and so did everything in-house. Vanguard were initially cynical that there was a mass market for ETFs but came around when ETFs took off. Vanguard and BGI (formerly Wells Fargo Nikko Advisors) were the two main pioneers of index investing, although State Street issued the first ETF in 1989 (SPY).

Another distinction is that iShares is the favourite ETF family for institutions to use, hence also the (in the US) active options market in ETFs. Whereas Vanguard mostly has a retail investor base. In fact iShares more recently introduced a "Core" range of ETFs for individuals that are cheaper than the equivalent and more liquid main ETFs. Effectively iShares now offers two families of ETF informally targeting two different classes of investor.

I mention this history because there is a sense in which Vanguard ETFs can be seen as "retail" whilst iShares is not. People can and do buy Vanguard ETFs from Vanguard itself because it is also a broker and fund platform. You can't buy iShares from Blackrock in the same way and certainly could not from BGI.

All that said, I think Vanguard should include all the different currency versions of its ETFs and leave the choice up to the individual. That's the case with most ETF offerings where there are versions for USD, GBP, EUR, CHF, JPY etc. as appropriate.

Wizard wrote:Going back to the very opening point, as I am thinking of putting a lump of my SIPP into a very broad based tracker it was a helpful steer. Working on a £100k initial investment I came up with a saving of about £725 over five years. That assumes a split between VNRT (56%), VEUR (20%), VAPX (6%), VJPN (8%) and VFEM (10%). The weighted average charge comes in at about 0.13%. I have included five costs to purchase in my HL SIPP of £11.95 and assumed no change in value in the fund. Of course if the value increases (which clearly I hope it will) the advantage of the lower annual fee increases. I also like the idea of beinb able to tweak any future allocations.

For me, as I am already at the £200 cap in my SIPP in terms of fees from HL, ETFs are much better than OIECs as my understanding is that the fee cap does not apply to them.

Food for thought.

At the end of January I created a new Watchlist in my HL account containing £100k worth of VWRL and £100k split in the proportions highlighted above for VNRT, VEUR, VAPX, VJPN and VFEM. At this point the VWRL holding is up £2,642 and the basket is up £2,611. It seems they do track each other pretty well and therefore I plan to split my investment across the basket to save the fees versus investing in VWRL.

Wizard wrote:

Wizard wrote:Going back to the very opening point, as I am thinking of putting a lump of my SIPP into a very broad based tracker it was a helpful steer. Working on a £100k initial investment I came up with a saving of about £725 over five years. That assumes a split between VNRT (56%), VEUR (20%), VAPX (6%), VJPN (8%) and VFEM (10%). The weighted average charge comes in at about 0.13%. I have included five costs to purchase in my HL SIPP of £11.95 and assumed no change in value in the fund. Of course if the value increases (which clearly I hope it will) the advantage of the lower annual fee increases. I also like the idea of beinb able to tweak any future allocations.

For me, as I am already at the £200 cap in my SIPP in terms of fees from HL, ETFs are much better than OIECs as my understanding is that the fee cap does not apply to them.

Food for thought.

At the end of January I created a new Watchlist in my HL account containing £100k worth of VWRL and £100k split in the proportions highlighted above for VNRT, VEUR, VAPX, VJPN and VFEM. At this point the VWRL holding is up £2,642 and the basket is up £2,611. It seems they do track each other pretty well and therefore I plan to split my investment across the basket to save the fees versus investing in VWRL.

Similar view ( 1.20 minutes approx) in this Pensioncraft video.

https://youtu.be/tHvlU1WGjpU

(Disclosure : I' m quite a Pensioncraft "fanboy"... )

I have followed a similar practice of a “deconstructed” VWRL running alongside VWRL. The danger or benefit is that you apply a twist, (bias, prejudice strategic judgement....) mine is to underweight Japan, this may cause performance to vary from VWRL by far more than 10 basis points, you might win or lose but is does rather dent the rationale for holding the All World Portfolio in the first place....

I researched building a DIY VWRL and got the inspiration from the boards here but as I hold a fair chunk of FTSE 350 shares directly I made an exUK versions with VAPX, VERX, VFEM, VJPN, VUSA

Ted Swippet is spot on. An unhedged ETF is just a basket of shares. At first glance therefore, your exposure maps to the country split of the index constituents. But even that is a gross oversimplification. Just because a company’s share price is expressed in a given currency doesn’t give an exposure to that currency.

A good example is Nestle. Denominated in CHF. 98% of its business and revenue from outside Switzerland. Does owning Nestle give CHF exposure? Absolutely not.

If you buy a global tracker, the best way to think of what you own is a stream of profits from all the (big and public) companies in the world. Depending on where they do business, that profit is in all different currencies.

My suggestion - don’t bother even worrying about currency risk on a global tracker. In reality, the goods and services you will need to consume will come from all over the world so your cost of living will similarly have global currency exposures, even if you pay for everything in GBP.

Unless the hard-Brexit crowd are successful in their dreams of a North-Korean style autarchy here in the U.K.

Spet0789 wrote:Ted Swippet is spot on. An unhedged ETF is just a basket of shares. At first glance therefore, your exposure maps to the country split of the index constituents. But even that is a gross oversimplification. Just because a company’s share price is expressed in a given currency doesn’t give an exposure to that currency.

A good example is Nestle. Denominated in CHF. 98% of its business and revenue from outside Switzerland. Does owning Nestle give CHF exposure? Absolutely not.

If you buy a global tracker, the best way to think of what you own is a stream of profits from all the (big and public) companies in the world. Depending on where they do business, that profit is in all different currencies.

My suggestion - don’t bother even worrying about currency risk on a global tracker. In reality, the goods and services you will need to consume will come from all over the world so your cost of living will similarly have global currency exposures, even if you pay for everything in GBP.

Unless the hard-Brexit crowd are successful in their dreams of a North-Korean style autarchy here in the U.K.

Sorry to reopen this, but could I check I have got my head around this correctly. I own VWRL denominated in GBP, therefore my exposure is:

1. Over 3000 global stocks roughly split 54% US, 8% Japan, 5.5% UK - so on and so forth.

2. A currency asset exposure basket roughly split along the same lines of ownership - 54% dollars, 8% Yen, 5.5% GBP so on and so forth - as I cannot see any literature saying it hedges the currency exposures.

3. A currency revenue exposure basket split very difficult to determine. In that point two above is true for asset ownership currency exposure - buying BP shares on the FTSE 100 in GBP; but not necessarily revenue currency exposures if I read Spet above correctly. This is something I have not thought of before but it's very relevant. The BP holding in VWRL will be in GBP / UK constituent of this fund but the revenue of this company will be in dollars given it's an oil company.

So overall, if i buy VWRL in GBP it's fair to say I get a global equity exposure and some exposure to a currency mix however it is likely to more weighted towards dollars as the defacto currency of commodity markets and global trade.

Walkeia wrote:So overall, if i buy VWRL in GBP it's fair to say I get a global equity exposure and some exposure to a currency mix, however it is likely to more weighted towards dollars as the defacto currency of commodity markets and global trade.

On the first clause, yes,

On the second, following "however", maybe. But I haven't thought closely about it. It may well be hard to quantify. And in any case it's hard to identify much of anything you could readily do to mitigate it if you wanted to.

TedSwippet wrote:

Walkeia wrote:So overall, if i buy VWRL in GBP it's fair to say I get a global equity exposure and some exposure to a currency mix, however it is likely to more weighted towards dollars as the defacto currency of commodity markets and global trade.

On the first clause, yes,

On the second, following "however", maybe. But I haven't thought closely about it. It may well be hard to quantify. And in any case it's hard to identify much of anything you could readily do to mitigate it if you wanted to.

Thank you - I appreciate. The first clause is the one I care about - owning a big basket of shares and a currency mix to boot - so I will continue to dollar cost averaging into this.

Wizard wrote:

Wizard wrote:Going back to the very opening point, as I am thinking of putting a lump of my SIPP into a very broad based tracker it was a helpful steer. Working on a £100k initial investment I came up with a saving of about £725 over five years. That assumes a split between VNRT (56%), VEUR (20%), VAPX (6%), VJPN (8%) and VFEM (10%). The weighted average charge comes in at about 0.13%. I have included five costs to purchase in my HL SIPP of £11.95 and assumed no change in value in the fund. Of course if the value increases (which clearly I hope it will) the advantage of the lower annual fee increases. I also like the idea of beinb able to tweak any future allocations.

For me, as I am already at the £200 cap in my SIPP in terms of fees from HL, ETFs are much better than OIECs as my understanding is that the fee cap does not apply to them.

Food for thought.

At the end of January I created a new Watchlist in my HL account containing £100k worth of VWRL and £100k split in the proportions highlighted above for VNRT, VEUR, VAPX, VJPN and VFEM. At this point the VWRL holding is up £2,642 and the basket is up £2,611. It seems they do track each other pretty well and therefore I plan to split my investment across the basket to save the fees versus investing in VWRL.

This topic came up on a different thread today. I therefore thought I would update on my test holding. Currently the Watchlist I set up shows a gain on the VWRL holding of £9,531.48 and for the basket of other Vanguard trackers the increase is £9,335.82. There has clearly been some divergence over the last twelve months or so, but I am not sure where to start to identify where this has originated.

Wizard wrote:

Wizard wrote:

Wizard wrote:Going back to the very opening point, as I am thinking of putting a lump of my SIPP into a very broad based tracker it was a helpful steer. Working on a £100k initial investment I came up with a saving of about £725 over five years. That assumes a split between VNRT (56%), VEUR (20%), VAPX (6%), VJPN (8%) and VFEM (10%). The weighted average charge comes in at about 0.13%. I have included five costs to purchase in my HL SIPP of £11.95 and assumed no change in value in the fund. Of course if the value increases (which clearly I hope it will) the advantage of the lower annual fee increases. I also like the idea of beinb able to tweak any future allocations.

For me, as I am already at the £200 cap in my SIPP in terms of fees from HL, ETFs are much better than OIECs as my understanding is that the fee cap does not apply to them.

Food for thought.

At the end of January I created a new Watchlist in my HL account containing £100k worth of VWRL and £100k split in the proportions highlighted above for VNRT, VEUR, VAPX, VJPN and VFEM. At this point the VWRL holding is up £2,642 and the basket is up £2,611. It seems they do track each other pretty well and therefore I plan to split my investment across the basket to save the fees versus investing in VWRL.

This topic came up on a different thread today. I therefore thought I would update on my test holding. Currently the Watchlist I set up shows a gain on the VWRL holding of £9,531.48 and for the basket of other Vanguard trackers the increase is £9,335.82. There has clearly been some divergence over the last twelve months or so, but I am not sure where to start to identify where this has originated.

Curious. Have you included dividends? It is possible that dividends are not treated consistently across funds. A long time ago now, but I remember that the Vanguard FTSE 100 ETF sold the Verizon shares split off by Vodafone and paid the proceeds out as dividends, but the equivalent iShares fund did not, reinvesting instead. If that happened in VWRL I would expect Verizon to have been kept as there would have been no reason to sell it.

There's this Vanguard Global All Cap GB£ Accumulation Fund 0.23% expense ratio. For those with iWeb they have it listed https://www.markets.iweb-sharedealing.c ... 00BD3RZ582