Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

Tracker Fund and ETF versions of the SAME investment

Index tracking funds and ETFs
GeoffF100
Lemon Quarter
Posts: 4724
Joined: November 14th, 2016, 7:33 pm
Has thanked: 178 times
Been thanked: 1363 times

Re: Tracker Fund and ETF versions of the SAME investment

#106667

Postby GeoffF100 » December 29th, 2017, 5:18 pm

OEICs only trade once per day, but do so at NAV. ETFs trade all the time, but trade at small premia/discounts to NAV, so there is a risk you may end up paying more than the NAV when you buy and selling at a discount.

This is no longer true for Vanguard UK OEICs. Vanguard UK has adopted "swing pricing" to replace dilution levies. If the number of units bought exceeds the number of units sold on a particular day, the price of the units is increased to cover the cost of buying the underlying assets. If the number of units bought falls short of the number of units sold, the price of the units is decreased to cover the cost of selling the underlying assets. Vanguard UK bond funds used to have an initial charge, but this has now gone. The cost of buying and selling is now recouped by adjusting the price. OEICs are becoming more like ETFs.

hiriskpaul
Lemon Quarter
Posts: 3852
Joined: November 4th, 2016, 1:04 pm
Has thanked: 682 times
Been thanked: 1489 times

Re: Tracker Fund and ETF versions of the SAME investment

#106864

Postby hiriskpaul » December 30th, 2017, 8:18 pm

Sixtyone wrote:Hello, hope it's OK to jump on an old thread,

I hold the Vanguard FTSE Developed Europe ex-U.K. Equity Index Fund in my HL SIPP for which I pay 0.45%. My other SIPP ETF's mean my costs are capped at £200, so it seems like a no brainer to sell up and buy VERX. The spread and dealing costs would be recovered in no more than 2 months. Am I missing something here ?

Thanks

No, you are not missing anything. Go ahead and switch. I don't think there is a better ETF from another provider either.

For your sake and mine though, I just hope that we are in the minority in not holding open ended funds with HL. If too many switch to ETFs (or ITs) HL may choose to "simplify" their fees...

hiriskpaul
Lemon Quarter
Posts: 3852
Joined: November 4th, 2016, 1:04 pm
Has thanked: 682 times
Been thanked: 1489 times

Re: Tracker Fund and ETF versions of the SAME investment

#107198

Postby hiriskpaul » January 1st, 2018, 7:11 pm

GeoffF100 wrote:
OEICs only trade once per day, but do so at NAV. ETFs trade all the time, but trade at small premia/discounts to NAV, so there is a risk you may end up paying more than the NAV when you buy and selling at a discount.

This is no longer true for Vanguard UK OEICs. Vanguard UK has adopted "swing pricing" to replace dilution levies. If the number of units bought exceeds the number of units sold on a particular day, the price of the units is increased to cover the cost of buying the underlying assets. If the number of units bought falls short of the number of units sold, the price of the units is decreased to cover the cost of selling the underlying assets. Vanguard UK bond funds used to have an initial charge, but this has now gone. The cost of buying and selling is now recouped by adjusting the price. OEICs are becoming more like ETFs.

That strikes me as a much fairer way than a fixed dilution levy, although I suspect the removal of the levy has more to do with marketing than perceived fairness!

dave559
Lemon Pip
Posts: 91
Joined: March 14th, 2018, 1:01 am
Has thanked: 288 times
Been thanked: 53 times

Re: Tracker Fund and ETF versions of the SAME investment

#124869

Postby dave559 » March 14th, 2018, 3:47 pm

Thank you to everyone who has contributed to this thread: as a newcomer to investing, I was also wondering the same thing about the effective differences between OEICs and ETFs, and this has saved me from having to ask as a new question.

Am I therefore right in thinking that the main differences in practice are that ETFs trade at varying prices throughout the day (and can only be traded in whole units), and that when ETFs are based in a foreign currency you may lose out a little on currency conversion costs (and are subject to variations in exchange rates affecting the value of what you get when you buy/sell)? Other than that, the main thing to consider seems to be the charges levied by your fundholder for each type of fund?

GeoffF100
Lemon Quarter
Posts: 4724
Joined: November 14th, 2016, 7:33 pm
Has thanked: 178 times
Been thanked: 1363 times

Re: Tracker Fund and ETF versions of the SAME investment

#124955

Postby GeoffF100 » March 14th, 2018, 8:37 pm

In some market conditions ETFs, particularly bond ETFs, can be subject to wide spreads and/or price spikes. It is wise to do some checks on the price and spread before trading an ETF. You can find the premium/discount at the close of business the previous day on Bloomberg. You can often find the index, delayed by 15 minutes on Google Finance. The LSE and some broker sites give the prices at which the ETF has traded during the day. Make sure that the price you are being offered looks sensible.

OEICs are simpler, you just place your order, and the price should be fair, but you do not know what it will be.

poppy101
Posts: 6
Joined: April 29th, 2018, 11:51 am
Has thanked: 5 times
Been thanked: 3 times

Re: Tracker Fund and ETF versions of the SAME investment

#135501

Postby poppy101 » April 29th, 2018, 12:04 pm

Hi

I'm comparing the FTSE Developed Europe ex UK UCITS ETF (VERX) versus the FTSE Developed Europe ex-U.K. Equity Index Fund

Both claim they track the same benchmark - the FTSE Developed Europe ex-UK index.
They both have roughly the same number of stocks (449 vs 450), and the same OCF.
Yet one has a risk rating of 6/7 and the other has a risk rating of 5/7. How can this be?

Also, when you look at the performance data over the past five years, they are very different. E.g for the period 1 Apr 2016-31 Mar 2017, the ETF has a NAV rise of 18.45% against a benchmark rise of 17.78%, yet the OEIC as a NAV rise of 27.78% against a benchmark rise of 27.94%
If they both track the same benchmark, why are the benchmark figures so different in every year?

(Can't post links but the ETF is vanguardinvestor.co.uk/investments/vanguard-ftse-developed-europe-ex-uk-ucits-etf while the OEIC is vanguardinvestor.co.uk/investments/vanguard-ftse-developed-europe-ex-uk-equity-index-fund-accumulation-shares )

Alaric
Lemon Half
Posts: 6035
Joined: November 5th, 2016, 9:05 am
Has thanked: 20 times
Been thanked: 1400 times

Re: Tracker Fund and ETF versions of the SAME investment

#135503

Postby Alaric » April 29th, 2018, 12:17 pm

poppy101 wrote:(Can't post links but the ETF is vanguardinvestor.co.uk/investments/vanguard-ftse-developed-europe-ex-uk-ucits-etf while the OEIC is vanguardinvestor.co.uk/investments/vanguard-ftse-developed-europe-ex-uk-equity-index-fund-accumulation-shares )


Isn't the word "accumulation" the explanation for the differential performance? More often than not an ETF will distribute income whilst an accumulation OIEC will reinvest it to increase the price.

Why they should have differential risk ratings is a slight mystery, although again it could be down to distribution v accumulation status. Risk ratings usually measure the volatility rather than the risk of a complete wipe out.

mc2fool
Lemon Half
Posts: 7812
Joined: November 4th, 2016, 11:24 am
Has thanked: 7 times
Been thanked: 3017 times

Re: Tracker Fund and ETF versions of the SAME investment

#135512

Postby mc2fool » April 29th, 2018, 12:37 pm

poppy101 wrote:If they both track the same benchmark, why are the benchmark figures so different in every year?

On a superficial examination I'd guess that the fact that the fund is measured in £ sterling and the ETF in Euros probably has a lot to do with it.

poppy101
Posts: 6
Joined: April 29th, 2018, 11:51 am
Has thanked: 5 times
Been thanked: 3 times

Re: Tracker Fund and ETF versions of the SAME investment

#135514

Postby poppy101 » April 29th, 2018, 12:41 pm

Surely dividends wouldn't account for a 10%+ difference within a single calendar year
Dividend yield for the FTSE developed europe ex-uk is around 2.6%

Alaric
Lemon Half
Posts: 6035
Joined: November 5th, 2016, 9:05 am
Has thanked: 20 times
Been thanked: 1400 times

Re: Tracker Fund and ETF versions of the SAME investment

#135521

Postby Alaric » April 29th, 2018, 12:56 pm

poppy101 wrote:Surely dividends wouldn't account for a 10%+ difference within a single calendar year


As suggested above, measuring them both in the same currency would be good starting point.

TheMotorcycleBoy
Lemon Quarter
Posts: 3245
Joined: March 7th, 2018, 8:14 pm
Has thanked: 2222 times
Been thanked: 587 times

Re: Tracker Fund and ETF versions of the SAME investment

#173947

Postby TheMotorcycleBoy » October 15th, 2018, 5:15 pm

I just wondered if anyone is still subscribing to this thread, if so, if I could drop a very similar question onto the back of it.

Basically are all ETFs passive investment instruments? That is, they are implemented mainly by an algorithm, e.g. tracking an index, and hence they run with minimal input (and hence justification for fee-charging) from human fund managers?

I'm asking this question as it leads on from an earlier thread where I started researching bond funds. Essentially I'm curious as to whether, except for the differences which people like Paul and others stated e.g. here, passive tracker OEIC funds and ETFs, are basically the same.

In other words, when I get to deciding between bond funds which are either OEICs or ETFs, the main thing to be mindful of, is the impact of fees.

thanks Matt

hiriskpaul
Lemon Quarter
Posts: 3852
Joined: November 4th, 2016, 1:04 pm
Has thanked: 682 times
Been thanked: 1489 times

Re: Tracker Fund and ETF versions of the SAME investment

#173978

Postby hiriskpaul » October 15th, 2018, 7:08 pm

TheMotorcycleBoy wrote:Basically are all ETFs passive investment instruments? That is, they are implemented mainly by an algorithm, e.g. tracking an index, and hence they run with minimal input (and hence justification for fee-charging) from human fund managers?

The vast majority of ETFS are passive, although "implemented mainly by an algorithm" is a more precise way of putting it. There are some exceptions though, such as 4 Vanguard factor ETFS. So you would always need to look carefully into what you were buying.

Not all actively managed funds charge exorbitant fees. Some charges available in the US are on a par with tracker funds and institutional investors typically negotiate much lower fund management fees than UK retail investors pay. UK retail investors do seem to get a raw deal though when it comes to fund management charges. UK fund managers seem very reluctant to compete on price when it comes to retail, perhaps for fear as to where that might lead.

TheMotorcycleBoy
Lemon Quarter
Posts: 3245
Joined: March 7th, 2018, 8:14 pm
Has thanked: 2222 times
Been thanked: 587 times

Re: Tracker Fund and ETF versions of the SAME investment

#173980

Postby TheMotorcycleBoy » October 15th, 2018, 7:24 pm

hiriskpaul wrote:
TheMotorcycleBoy wrote:Basically are all ETFs passive investment instruments? That is, they are implemented mainly by an algorithm, e.g. tracking an index, and hence they run with minimal input (and hence justification for fee-charging) from human fund managers?

The vast majority of ETFS are passive, although "implemented mainly by an algorithm" is a more precise way of putting it. There are some exceptions though, such as 4 Vanguard factor ETFS. So you would always need to look carefully into what you were buying.

Not all actively managed funds charge exorbitant fees. Some charges available in the US are on a par with tracker funds and institutional investors typically negotiate much lower fund management fees than UK retail investors pay. UK retail investors do seem to get a raw deal though when it comes to fund management charges. UK fund managers seem very reluctant to compete on price when it comes to retail, perhaps for fear as to where that might lead.

Thanks for this Paul,

So do you have any strong views on what's best for us to look for in terms of Bond Funds, i.e. oeic or etf varieties? Or is it just a case of reading the specifications properly and getting a handle on the fees? I'm guessing that since we are doing this long-term and not frequent trading, a low-cost OEIC is probably just as good as an ETF.

FWIW, I'm guessing that any decent Bond fund (oeic or etf), must have a certain "degree of management", because presumably, as the cash flows (coupons and principals) pile up, someone must have a view on the next bond issues to buy into. Sound about right? Or can even this be largely automated, perhaps an algorithm doing the bulk of the selection, and maybe only requiring an analyst to "sign off" on any final selection decision?

Sorry to get nerdy and OCD about it.....but I'm kinda intrigued as to how exactly these things are implemented.

thanks again, Matt

hiriskpaul
Lemon Quarter
Posts: 3852
Joined: November 4th, 2016, 1:04 pm
Has thanked: 682 times
Been thanked: 1489 times

Re: Tracker Fund and ETF versions of the SAME investment

#174147

Postby hiriskpaul » October 16th, 2018, 2:22 pm

In practice there is not really any such thing as a totally passive fund. Passive funds set out to track an index, so buying/selling is at least required as index constituents and weights change. Cap weighted funds typically have the lowest turnover and trading costs, but still not zero. As you say bond funds need to sell and buy as bond maturity dates reduce. In general though, for distributing funds, coupons are paid out and used to cover costs and fees rather than reinvested.

For bond funds I would look for something that matches your desire for duration, credit quality and possibly currency exposure, but also look at running costs. Whether it is an OEIC or ETF would be secondary, unless OEICS are expensive to hold on your chosen platform.

TheMotorcycleBoy
Lemon Quarter
Posts: 3245
Joined: March 7th, 2018, 8:14 pm
Has thanked: 2222 times
Been thanked: 587 times

Re: Tracker Fund and ETF versions of the SAME investment

#174203

Postby TheMotorcycleBoy » October 16th, 2018, 5:27 pm

Thanks again, Paul

hiriskpaul wrote:In general though, for distributing funds, coupons are paid out and used to cover costs and fees rather than reinvested.

Sorry, what do you mean by this? Surely only a small part of the coupons goes on fees and costs, and the majority, at least for accumulating funds, pools up to assist in the purchase of further assets?

hiriskpaul wrote:For bond funds I would look for something that matches your desire for duration, credit quality and possibly currency exposure, but also look at running costs. Whether it is an OEIC or ETF would be secondary, unless OEICS are expensive to hold on your chosen platform.

Yes that's in accord, with how I was thinking - thanks for confirming my opinion.

Matt

tjh290633
Lemon Half
Posts: 8209
Joined: November 4th, 2016, 11:20 am
Has thanked: 913 times
Been thanked: 4097 times

Re: Tracker Fund and ETF versions of the SAME investment

#174256

Postby tjh290633 » October 16th, 2018, 9:22 pm

hiriskpaul wrote:In practice there is not really any such thing as a totally passive fund. Passive funds set out to track an index, so buying/selling is at least required as index constituents and weights change.

They don't have to buy or sell as weights change. The market takes care of that.

They do have to buy if they have a net inflow of cash and sell if there is a net outflow. Also as constituents change.

TJH

hiriskpaul
Lemon Quarter
Posts: 3852
Joined: November 4th, 2016, 1:04 pm
Has thanked: 682 times
Been thanked: 1489 times

Re: Tracker Fund and ETF versions of the SAME investment

#174258

Postby hiriskpaul » October 16th, 2018, 9:24 pm

tjh290633 wrote:
hiriskpaul wrote:In practice there is not really any such thing as a totally passive fund. Passive funds set out to track an index, so buying/selling is at least required as index constituents and weights change.

They don't have to buy or sell as weights change. The market takes care of that.

They do have to buy if they have a net inflow of cash and sell if there is a net outflow. Also as constituents change.

TJH

Yes, not well put. What I meant was if weights change due to corporate actions, e.g. rights issues.

hiriskpaul
Lemon Quarter
Posts: 3852
Joined: November 4th, 2016, 1:04 pm
Has thanked: 682 times
Been thanked: 1489 times

Re: Tracker Fund and ETF versions of the SAME investment

#174260

Postby hiriskpaul » October 16th, 2018, 9:27 pm

TheMotorcycleBoy wrote:Thanks again, Paul

hiriskpaul wrote:In general though, for distributing funds, coupons are paid out and used to cover costs and fees rather than reinvested.

Sorry, what do you mean by this? Surely only a small part of the coupons goes on fees and costs, and the majority, at least for accumulating funds, pools up to assist in the purchase of further assets?

hiriskpaul wrote:For bond funds I would look for something that matches your desire for duration, credit quality and possibly currency exposure, but also look at running costs. Whether it is an OEIC or ETF would be secondary, unless OEICS are expensive to hold on your chosen platform.

Yes that's in accord, with how I was thinking - thanks for confirming my opinion.

Matt

Yes only a small amount of the coupon should go on costs. They could allocate some of this cost to capital, as some ITs do, but I think most of it will come out of the coupons as it is simpler.

TheMotorcycleBoy
Lemon Quarter
Posts: 3245
Joined: March 7th, 2018, 8:14 pm
Has thanked: 2222 times
Been thanked: 587 times

Re: Tracker Fund and ETF versions of the SAME investment

#174306

Postby TheMotorcycleBoy » October 17th, 2018, 6:17 am

tjh290633 wrote:
hiriskpaul wrote:In practice there is not really any such thing as a totally passive fund. Passive funds set out to track an index, so buying/selling is at least required as index constituents and weights change.

They don't have to buy or sell as weights change. The market takes care of that.

They do have to buy if they have a net inflow of cash and sell if there is a net outflow. Also as constituents change.

TJH

I think I understand. So if a FTSE100 index tracker fund has amongst its holdings companies A and B, both of which have 1000 shares in total issue, then I assume the fund will have equal numbers of shares of each firm e.g. 10 shares each. So far so good?

Assuming that yesterday an A share was priced at £2 and B was at £5, then if today their values change, e.g. today A=£3 B=£4, then because the issued numbers of the shares in the market place of A and B, remains the same, the fund in this scenario, needs to do no buying or selling.

However, if A buys back 100 of its own shares, then its size in the market falls by 10%, and hence for the fund to balance itself, it will most likely sell a single A share from it's holding.

Correct?

Alaric
Lemon Half
Posts: 6035
Joined: November 5th, 2016, 9:05 am
Has thanked: 20 times
Been thanked: 1400 times

Re: Tracker Fund and ETF versions of the SAME investment

#174318

Postby Alaric » October 17th, 2018, 8:09 am

TheMotorcycleBoy wrote:However, if A buys back 100 of its own shares, then its size in the market falls by 10%, and hence for the fund to balance itself, it will most likely sell a single A share from it's holding.


I rather have the idea that the constituents of the various indexes are only changed about every three months. It's only then that a fund tracking an index needs to contemplate rebalancing. Tracker funds don't always buy everything in an index, some may use a sampling approach, particularly if otherwise they would end up with very small holdings.


Return to “Passive Investing”

Who is online

Users browsing this forum: No registered users and 8 guests