The Lemon Fool

I try to keep a tight lid on my fund costs, and my spreadsheet set up a while back shows 0.07% OCF for HSBC FTSE All Share Index Income C (inc).

However, Morningstar currently shows it as having a 0.13% OCF. In a similar vein, HSBC FTSE 250 Index Income C (inc) seems to have increased from 0.18% a while back to currently 0.39%.

Is it my imagination, or have HSBC recently (and stealthily) more or less doubled the charges on some of their class C tracker funds? Anyone else noticed this? On the face of it, these HSBC funds now look rather expensive in comparison with equivalents from Vanguard and Fidelity class P funds.

For HSBC FTSE All Share Index Income C (inc) HL says the OCF is 0.06%:

https://www.hl.co.uk/funds/fund-discoun ... y-features

The KIID referenced by HL says 0.13%:

https://www.fundslibrary.co.uk/FundsLib ... tdHi0l&r=1

The KIID says that it was accurate on 25 November 2022. We should be able to rely on the KIID. I could not find anything from HSBC. Vanguard does publish numbers for its funds, but I have recently raised an issue where Vanguard's published number for the last dividend of Vanguard Developed World ex UK does not exactly match what I was paid in both my Vanguard account and my iWeb account.

The ongoing charge of 0.13% I think is the total expenses charged to the fund. There will be other expenses on top of the manager's fee of 0.07%

The full report, which shows the OCFs for years ending 15th May, does show the increase compared to previous years ( https://www.fundslibrary.co.uk/FundsLib ... _documents - a big doc (447 pages) for all their funds, and all versions).

For Income C class, it does indeed show the All Share Index fund OCF increasing from 0.06% in 2020 and 2021 to 0.13% in 2022. It does show, on page 60, that the purchase/sales taxes and commissions for the fund went way up from the previous year - from about £500,000 to £2,600,000 (mainly purchase taxes - stamp duty, I suppose). Has there been more churn in the index, so they've spent more time and money buying and selling?

EthicsGradient wrote:For Income C class, it does indeed show the All Share Index fund OCF increasing from 0.06% in 2020 and 2021 to 0.13% in 2022.

Thanks. So not my imagination, then. It's a hefty percentage increase, and while 0.13% isn't exactly expensive, it doesn't look nearly as appealing as the 0.06% previously, nor the 0.06% or so charged by its Vanguard and Fidelity rival funds.

EthicsGradient wrote:It does show, on page 60, that the purchase/sales taxes and commissions for the fund went way up from the previous year - from about £500,000 to £2,600,000 (mainly purchase taxes - stamp duty, I suppose). Has there been more churn in the index, so they've spent more time and money buying and selling?

Hmm. From the bottom of the comparative tables: "The operating charges include all costs borne by the Fund, except for direct transaction costs." And even if not excluded, I'd at least imagine that the UK All Share index shouldn't churn too much, not least because anything moving between the FTSE 100 and the FTSE 250 indexes ought not to affect the All Share index.

Beside this though, a bit hard to tease out any explanation that hasn't simply HSBC increased their fund charge. (Not that I can really do much about this. I have a sizable and long-term holding in this fund, and under the future miserly CGT allowance regime the time it would take me to get out of this holding with minimal CGT damage is on the order of a geological timescale.)

TedSwippet wrote:a bit hard to tease out any explanation that hasn't simply HSBC increased their fund charge. (Not that I can really do much about this. I have a sizable and long-term holding in this fund, and under the future miserly CGT allowance regime the time it would take me to get out of this holding with minimal CGT damage is on the order of a geological timescale.)

I do not think of HSBC as a world-class fund manager in the way that Vanguard, Fidelity and Blackrock are. So even if the expenses were the same, I would not choose HSBC. And if they really have nearly doubled their fee, when fees generally are coming down, then that is a black mark on them.

But if you are switching from a HSBC tracker to an identical tracker from another house, might it be possible to argue that your sale proceeds should be matched against your new purchase, for CGT purposes? The argument being that you are essentially swapping into the exact same asset, enabling you to take advantage of the 30 day rule?

Lootman wrote:

TedSwippet wrote:a bit hard to tease out any explanation that hasn't simply HSBC increased their fund charge. (Not that I can really do much about this. I have a sizable and long-term holding in this fund, and under the future miserly CGT allowance regime the time it would take me to get out of this holding with minimal CGT damage is on the order of a geological timescale.)

I do not think of HSBC as a world-class fund manager in the way that Vanguard, Fidelity and Blackrock are. So even if the expenses were the same, I would not choose HSBC. And if they really have nearly doubled their fee, when fees generally are coming down, then that is a black mark on them.

But if you are switching from a HSBC tracker to an identical tracker from another house, might it be possible to argue that your sale proceeds should be matched against your new purchase, for CGT purposes? The argument being that you are essentially swapping into the exact same asset, enabling you to take advantage of the 30 day rule?

I believe that the answer to the second point is that it does not count as the same asset.

As far as the first point is concerned, I would agree. Vanguard has been committed to reducing its charges over time, and hopefully some of that idealism remains. HSBC? We now know for sure. It is also smelly sneaking a price increase into the KIID and Prospectus. We have to tick the box to say that we have read them before buying, but no one tells us if they change. HL clearly did not know. iWeb? Do not bother asking.

Lootman wrote:

TedSwippet wrote:a bit hard to tease out any explanation that hasn't simply HSBC increased their fund charge. (Not that I can really do much about this. I have a sizable and long-term holding in this fund, and under the future miserly CGT allowance regime the time it would take me to get out of this holding with minimal CGT damage is on the order of a geological timescale.)

I do not think of HSBC as a world-class fund manager in the way that Vanguard, Fidelity and Blackrock are. So even if the expenses were the same, I would not choose HSBC. And if they really have nearly doubled their fee, when fees generally are coming down, then that is a black mark on them.

But if you are switching from a HSBC tracker to an identical tracker from another house, might it be possible to argue that your sale proceeds should be matched against your new purchase, for CGT purposes? The argument being that you are essentially swapping into the exact same asset, enabling you to take advantage of the 30 day rule?

I'm certain HMRC would never accept a tracker operated by another manager as "the same asset". There are arguments about whether accumulation and income versions of the same fund count as the same asset when operated by the same manager (and I think for that the answer is "if you ever go via cash, then they are different assets; if you can get the manager to convert them, then perhaps they are the same, but I'm not sure if anyone can say they've had this confirmed in practice by HMRC").

Indeed, many people in the past have used switching from one manager's tracker to another one tracking the same index from someone else, to make use of their annual GD exemption without having to stay out of the market for 30 days.

Lootman wrote:I do not think of HSBC as a world-class fund manager in the way that Vanguard, Fidelity and Blackrock are. So even if the expenses were the same, I would not choose HSBC. And if they really have nearly doubled their fee, when fees generally are coming down, then that is a black mark on them.

Yeah. When I set everything up some time ago, mostly lump sum, they were pretty much the best bet. Vanguard hadn't yet really arrived in the UK, and Fidelity and iShares were both considerably pricier, as I recall. And over time, HSBC dropped their charges to compete. It's only in the past year or so, by the look of things, that this disconnect appears.

Maybe it's temporary, a blip. Perhaps I'll phone them and see what they have to say on the matter. Again though, short of moving out of the UK -- something that looks more tempting with each passing budget, autumn statement, and so on -- there's nothing I can realistically do in terms of taking my business elsewhere, thanks to the CGT 'lock-in' effect. Tax losses from moving would swamp any added HSBC charge many times over.

TedSwippet wrote: short of moving out of the UK -- something that looks more tempting with each passing budget, autumn statement, and so on -- there's nothing I can realistically do in terms of taking my business elsewhere, thanks to the CGT 'lock-in' effect. Tax losses from moving would swamp any added HSBC charge many times over.

The other point of view is that no matter how painful paying the CGT might be, it is quite probable that CGT will be taxed more in the future. This government has started that process by halving the CGT-free annual allowance starting next year, and again the year after. A Labour government in 2025 might go further, even taxing capital gains at your highest marginal income tax rate. Maybe even NICs on top?

I have the same potential problem even though my trackers are already with Vanguard. At some point for some reason I will want to sell them, and that means paying CGT.

I believe that if you leave the UK you don't lose liability for UK CGT for a period of five years, although I haven't really researched that.

TedSwippet wrote:Tax losses from moving would swamp any added HSBC charge many times over.

Also the sell/buy spread!

Lootman wrote:

TedSwippet wrote: short of moving out of the UK -- something that looks more tempting with each passing budget, autumn statement, and so on -- there's nothing I can realistically do in terms of taking my business elsewhere, thanks to the CGT 'lock-in' effect. Tax losses from moving would swamp any added HSBC charge many times over.

The other point of view is that no matter how painful paying the CGT might be, it is quite probable that CGT will be taxed more in the future. This government has started that process by halving the CGT-free annual allowance starting next year, and again the year after. A Labour government in 2025 might go further, even taxing capital gains at your highest marginal income tax rate. Maybe even NICs on top?

I have the same potential problem even though my trackers are already with Vanguard. At some point for some reason I will want to sell them, and that means paying CGT.

I believe that if you leave the UK you don't lose liability for UK CGT for a period of five years, although I haven't really researched that.

The cut in the annual allowance has convinced me to bite the bullet and start converting my active non-sheltered funds into trackers in the same geography. I looked at the annual charge premium I pay for each being "active", compared it to the CGT I'll pay for selling them, and have now started accepting the CGT for those with the highest premium:CGT ratio (for those that have done best, this is so small I won't sell them; there was one tracker I had, in emerging markets, that had very little gains, and an OCF significantly higher than a competitor, that I've already sold). I'm going to sell until I've almost reached the higher tax bracket.

This is perhaps the kind of behaviour the government wanted.

Lootman wrote: have the same potential problem even though my trackers are already with Vanguard. At some point for some reason I will want to sell them, and that means paying CGT.

The rules can change, of course. Currently there is no CGT on death, and none for charitable donations. Hopefully, my Vanguard trackers will remain good investments until I give them away.

Lootman wrote:I believe that if you leave the UK you don't lose liability for UK CGT for a period of five years, although I haven't really researched that.

My understanding also. Five years or more is fine by me. (Given the current state of things, indefinite doesn't seem out of the question either.)

scrumpyjack wrote:

TedSwippet wrote:Tax losses from moving would swamp any added HSBC charge many times over.

Also the sell/buy spread!

No spread on OEICs, at least in theory (of course, there's always 'swing pricing'). With my luck though, the inevitable 24 hours minimum out of the markets would consistent fall not in my favour, just to add to the tax loss.

TedSwippet wrote:No spread on OEICs, at least in theory (of course, there's always 'swing pricing'). With my luck though, the inevitable 24 hours minimum out of the markets would consistent fall not in my favour, just to add to the tax loss.

I usually arrange to have cash so that I can buy and sell simultaneously. Bed and ISA works well if I buy and sell the same fund at the same pricing point (on different platforms).

You can over or under run your allowance when the price moves, however. It is better to sell to raise a fixed sum rather than sell a fixed number of units. If you do that, according to my algebra, a good estimate of the over-run is the base cost of the shares sold, multiplied by the increase in the unit price from the previous valuation, and divided by the unit price at the previous valuation. Here is a scatter plot for daily moves of the S&P 500:

https://www.financialsamurai.com/averag ... ck-market/

A global tracker should be a little less volatile. 1% movement is typical. 2% is common. 4% is rare. 8% is about as bad as it gets from one day's close to the next.

Beside this though, a bit hard to tease out any explanation that hasn't simply HSBC increased their fund charge.

The funds under management were getting smaller in the last two years, if I read that report correctly. If costs are unchanged, fees as a percentage need to go up?