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  • FIRST POST
    • ceblackshaw
    • By ceblackshaw 11th Jul 17, 9:02 AM
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    ceblackshaw
    Returns from Tracker funds and how to invest in them.
    • #1
    • 11th Jul 17, 9:02 AM
    Returns from Tracker funds and how to invest in them. 11th Jul 17 at 9:02 AM
    I am trying to work out the best was to invest in a tracker fund. Probably the Legal and General FTSE 100 Tracker.

    L&G charge .1%. But. Overall charges they quote are .82% (I assume trading etc is in here). Which reduces the overall return to 2.8%.

    I considered investing via Hargreave Lansdown as they reduce the fund charge to .06%. They quote a return on 3.5% - but I assume that is gross. The trading costs will be the same as they are still done by L&G so net return will be slightly above the 2.8% quoted by L&G.

    BUT. HL charge a platform fee of .45% so overall they will be much less than buying direct.

    Is my logic and understanding correct?
Page 1
    • AnotherJoe
    • By AnotherJoe 11th Jul 17, 9:21 AM
    • 7,244 Posts
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    AnotherJoe
    • #2
    • 11th Jul 17, 9:21 AM
    • #2
    • 11th Jul 17, 9:21 AM
    Start with the fundamentals of what you are investing in.

    Which means, FTSE100, very poor choice if it's your only investment.

    Second point, nothing special about a tracker fund, again start with what you wish to invest in, then decide if tracker is best for that.

    Which makes it a moot point if HL or L&G or anyone else are cheaper to hold this fund.
    Last edited by AnotherJoe; 11-07-2017 at 9:33 AM.
    • ceblackshaw
    • By ceblackshaw 11th Jul 17, 9:28 AM
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    ceblackshaw
    • #3
    • 11th Jul 17, 9:28 AM
    • #3
    • 11th Jul 17, 9:28 AM
    Thanks.
    Don't dwell on the investments themselves.
    Charges will apply to investments bought direct or via a platform. I am trying to work out the charges.
    Selecting an investment can follow; that will be driven by purpose timescales, risk etc
    I find the charges are very opaque.
    • coyrls
    • By coyrls 11th Jul 17, 9:51 AM
    • 853 Posts
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    coyrls
    • #4
    • 11th Jul 17, 9:51 AM
    • #4
    • 11th Jul 17, 9:51 AM
    There are implicit charges levied by the fund itself, you never explicitly pay these charges, they are deducted from the fund itself. Any fund performance information will be net of these charges and so you don’t need to subtract them again. You can find out these charges by looking for the ongoing charge figure (OCF) for the funds that you are interested in (there are some costs that are not included in the OCF). Note that the OCF will vary between different classes of the same fund and that different classes the same fund will be available on different platforms.

    There are also explicit charges levied by the platform on which you choose to hold your funds. There are a myriad of ways in which platforms choose to charge for holding funds; it can be a fixed percentage of your holdings, a percentage that varies by value or a fixed charge. You may or may not be charged for trading and you will probably face some sort of charge if you transfer out of your chosen platform. Which platform is the “best” for you will depend on a number of factors. Here are some resources to help you decide on which platform to choose:

    https://www.langcatfinancial.co.uk/product/come-go-served/
    http://monevator.com/compare-uk-cheapest-online-brokers/
    http://forums.moneysavingexpert.com/showthread.php?t=5583030&highlight=
    • ceblackshaw
    • By ceblackshaw 11th Jul 17, 10:43 AM
    • 13 Posts
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    ceblackshaw
    • #5
    • 11th Jul 17, 10:43 AM
    • #5
    • 11th Jul 17, 10:43 AM
    Thank you very much. Very helpful. I think you confirmed the trading etc charges are paid by the fund - so in my example. HL would pay them as they buy the fund from L&G who incur them.

    As an aside I noted "there are some costs that are not included in the OCF" - how does the finance industry continue to get away with that?

    I still don't understand how HL can headline a return of 3.5% from an L&G fund that L&G themselves say will be 2.8% after charges. I suspect it is Gross -vs- Net debate but there is no clarity (that i can spot).

    Given the platform costs (which may be worth paying, for example, if you have a large portfolio measured by types and/or value) if you are buying a small number of standard products - buying direct is the best approach.

    Thanks again.

    I'll go and consider what to invest in now.

    What I'm trying to do is use my (about to start) State Pension for the next 10 years to pay off the interest only portion of my mortgage. The lowest risk approach would be to convert the whole mortgage to repayment. I thought I may do better to invest, low risk, in stocks (and so get a 2.8% return as opposed to "mortgage interest rate" return (currently about 1%)).

    I know I need to watch out for stock market crash as I get close to the end of the period.

    Any other comments or observations?
    • AnotherJoe
    • By AnotherJoe 11th Jul 17, 10:52 AM
    • 7,244 Posts
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    AnotherJoe
    • #6
    • 11th Jul 17, 10:52 AM
    • #6
    • 11th Jul 17, 10:52 AM

    What I'm trying to do is use my (about to start) State Pension for the next 10 years to pay off the interest only portion of my mortgage. The lowest risk approach would be to convert the whole mortgage to repayment. I thought I may do better to invest, low risk, in stocks (and so get a 2.8% return as opposed to "mortgage interest rate" return (currently about 1%)).

    I know I need to watch out for stock market crash as I get close to the end of the period.

    Any other comments or observations?
    Originally posted by ceblackshaw
    FTSE100 is not low risk.
    • eskbanker
    • By eskbanker 11th Jul 17, 10:58 AM
    • 5,465 Posts
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    eskbanker
    • #7
    • 11th Jul 17, 10:58 AM
    • #7
    • 11th Jul 17, 10:58 AM
    I thought I may do better to invest, low risk, in stocks (and so get a 2.8% return as opposed to "mortgage interest rate" return (currently about 1%)).

    I know I need to watch out for stock market crash as I get close to the end of the period.

    Any other comments or observations?
    Originally posted by ceblackshaw
    Hopefully you're aware that you won't get a 2.8% return in any meaningful sense - it might average out to be something like that (hopefully better) over the length of an economic cycle (10+ years) but in reality you'll have good double-digit growth years and some negative ones over that sort of duration.

    Building on an earlier comment from a previous poster, investing more broadly than a single index is a better bet to minimise risk, as diversification is key. I'd suggest you look at a global multi-asset fund of funds - there are a number of options in the market(including Blackrock, HSBC and L&G) but Vanguard's LifeStrategy range is now available directly from them at a low cost of 0.15%, which is worthy of serious consideration....
    • coyrls
    • By coyrls 11th Jul 17, 11:17 AM
    • 853 Posts
    • 867 Thanks
    coyrls
    • #8
    • 11th Jul 17, 11:17 AM
    • #8
    • 11th Jul 17, 11:17 AM
    Thank you very much. Very helpful. I think you confirmed the trading etc charges are paid by the fund - so in my example. HL would pay them as they buy the fund from L&G who incur them.
    Originally posted by ceblackshaw
    There are two ways of understanding what you mean by trading costs. The fund itself will incur trading costs as it buys and sells shares that make up the fund. These trading costs are paid by the fund and not explicitly by you (incidentally this is an example of fund costs that are not captured by the OCF). There also trading costs of you actually buying funds. Depending on the platform you choose, you may or may not be explicitly charged for these trading costs. HL is an example of a platform where you do not pay these trading costs but instead pay a high percentage charge on the value of your funds (0.45%).

    As an aside I noted "there are some costs that are not included in the OCF" - how does the finance industry continue to get away with that?
    Originally posted by ceblackshaw
    The important thing to know is that fund performance is quoted net of charges. The FCA have recently produced a report that suggests that funds should provide more data on “hidden” charges.

    I still don't understand how HL can headline a return of 3.5% from an L&G fund that L&G themselves say will be 2.8% after charges. I suspect it is Gross -vs- Net debate but there is no clarity (that i can spot).
    Originally posted by ceblackshaw
    I don’t know where you are getting these figures from, so I can’t comment. Perhaps they are quoting performance over different time periods. You can’t rely on either figure as a predictor of future performance.


    Given the platform costs (which may be worth paying, for example, if you have a large portfolio measured by types and/or value) if you are buying a small number of standard products - buying direct is the best approach.
    Originally posted by ceblackshaw
    You might think so but that is often not the case. Most people would choose to hold investments within an ISA wrapper and would often want to hold more than one fund across different providers, a platform makes this possible.


    Thanks again.

    I'll go and consider what to invest in now.
    Originally posted by ceblackshaw
    Well that really is going to be your most important decision and should be made before any other decision. Your initial suggestion of investing only in a FTSE 100 tracker would objectively be a bad decision. You should probably be looking at multi-asset funds made up of either trackers or actively managed. My preference would be for a fund made up of passive trackers but others would have different views.


    What I'm trying to do is use my (about to start) State Pension for the next 10 years to pay off the interest only portion of my mortgage. The lowest risk approach would be to convert the whole mortgage to repayment. I thought I may do better to invest, low risk, in stocks (and so get a 2.8% return as opposed to "mortgage interest rate" return (currently about 1%)).

    I know I need to watch out for stock market crash as I get close to the end of the period.

    Any other comments or observations?
    Originally posted by ceblackshaw
    Yes, do some more research on investments and investment strategies. The Monevator website is a good start.
    • greatkingrat
    • By greatkingrat 11th Jul 17, 11:52 AM
    • 43 Posts
    • 47 Thanks
    greatkingrat
    • #9
    • 11th Jul 17, 11:52 AM
    • #9
    • 11th Jul 17, 11:52 AM
    Firstly you need to learn the difference between yield and return. The figure of 2.8% quoted on the Legal and General website is the historic yield, not the return. This are the dividends received by the fund during the year.

    So if you invested £1000, you would have received £28 of dividends during the last year, which could either be taken as income, or reinvested in buying more units in the fund.

    However if share prices fell during the year, your £1000 might only be worth £900 a year later, so even though you have received a +2.8% yield, your overall total return will be negative because you now only have £928 (900+28).
    • ceblackshaw
    • By ceblackshaw 11th Jul 17, 12:12 PM
    • 13 Posts
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    ceblackshaw
    Yes - I am aware but always good to be reminded. Once I have sorted charges (think I have done that) and need to work out strategy - 1) shall I take the risk 2) how to spread and mitigate the risk.I've decided to do it so fund selection is probably the issue for 2.
    • ceblackshaw
    • By ceblackshaw 11th Jul 17, 12:14 PM
    • 13 Posts
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    ceblackshaw
    Thanks again - yes do understand the difference between yield and return. And the risk of the value crashing is as problem I need to mitigate.
    • Asghar
    • By Asghar 11th Jul 17, 12:31 PM
    • 104 Posts
    • 53 Thanks
    Asghar
    I still don't understand how HL can headline a return of 3.5% from an L&G fund that L&G themselves say will be 2.8% after charges. I suspect it is Gross -vs- Net debate but there is no clarity (that i can spot).
    Originally posted by ceblackshaw
    It has nothing to do with gross vs net charges. There are different charges even with the same Legal & General fund because there are different classes of the same fund that are available to different investors.

    If you are talking about the UK Index 100 Trust then the FTSE 100 has a Yield of 3.60% which is the dividends companies pay out from some of their profits. So if the FTSE 100 index stayed flat throughout the whole year, the fund would still increase in value by 3.60% (with no charges).

    When you invest direct with Legal & General, you are investing in the R Class of the fund which has a minimum lump sum amount of £500 or £50 monthly. This R Class of the fund has an ongoing charge of 0.82%, this is taken from the income the fund receives from the company dividends. So from an overall FTSE 100 Yield of 3.60% you are left with growth of 2.80% within the fund.

    When you invest with Legal & General via Hargreaves Lansdown or other platform providers, they are able to invest in the C or I Class of the fund which have a minimum lump sum investment of at least £1 million. This C & I Classes of the fund have an ongoing charge of just 0.10%, so again taken from the income you are now left with growth of 3.50% within the fund.

    Platform providers are able to access the Classes of the fund with the lowest charges because they pool everyone's money and have much larger sums to invest. So even with the Hargreaves Lansdown 0.45% platform fee it is still cheaper to invest in the UK Index 100 Trust via them.

    If you are investing in a managed (non tracker fund) then these have higher ongoing charges anyway and it's normally cheaper to go direct.
    • Asghar
    • By Asghar 11th Jul 17, 1:06 PM
    • 104 Posts
    • 53 Thanks
    Asghar
    Forgot to add that although you are getting lower fund charges and a Yield of 3.50% by investing via Hargreaves Lansdown, with the 0.45% platform fee which you are paying them, the effective Yield to you would be 3.05% after all the fund and platform charges.

    There are cheaper platform providers like Charles Stanley Direct who only charge a fee of 0.25%, so you would be left with an effective Yield of 3.25%.
    • ceblackshaw
    • By ceblackshaw 11th Jul 17, 1:51 PM
    • 13 Posts
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    ceblackshaw
    Asghar - are you sure? HL discount the L&G fee from .1 to .06. I thought the rest of the L&G charge (0.72) was not management fee but fund costs (trading etc). In which case HL return would be much less as those costs would also be included before value was sent to HL. I can see how HL get a discount on the management fee from L&G for bringing such large investment. But I cannot see how they get a discount from the fund costs (if they do anyone investing direct is getting a very raw deal). But that was the nub of my question. I think I've had replies saying HL get 3.5-0.06-.45. And replies suggesting they get 2.8+.04-.45. Not sure how to get a definitive answer! Thanks for your time though (Asghar and all who have replied).
    • Bravepants
    • By Bravepants 11th Jul 17, 1:55 PM
    • 249 Posts
    • 275 Thanks
    Bravepants
    Go for a Global index tracker...not FTSE 100.


    Don't bother looking at the value of FTSE share indices or any other index while you are investing (I assume that is what you mean by "follow")...this will make you think "short term" instead of "long term". What are you going to if the FTSE falls 20%, sell? Don't!
    • ceblackshaw
    • By ceblackshaw 11th Jul 17, 2:09 PM
    • 13 Posts
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    ceblackshaw
    Thanks Bravepants. Good advice. I'm still trying to get a clear picture of charges at the moment. Very opaque. I agree I need a broader portfolio of investments.
    • AndyT678
    • By AndyT678 11th Jul 17, 2:28 PM
    • 714 Posts
    • 956 Thanks
    AndyT678
    Normally you'd expect the process for new investments to work something like this:

    1. Understand your goals / purpose
    2. Look at timescales and risk appetite
    3. Figure out an asset allocation that should deliver 1. within the constraints of 2. Possibly revisit 1 and 2 if necessary.
    4. Assess which tax wrappers to use
    5. Select a set of investments consistent with 3 based on suitability and cost but mostly suitability.
    6. Assess which platform(s) offer the best solution for holding 4&5.

    You seem to be approaching this in almost the exact reverse order.
    • ceblackshaw
    • By ceblackshaw 11th Jul 17, 2:41 PM
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    ceblackshaw
    Not really AndyT678 - this thread is about 6. I have my answers to 1,2,3,4. I'm working on 5 and when I get to 6 I want to know the costs. I find it VERY hard to find the costs and to compare platforms. I agree the process - but I don't agree that the actions for each step cannot be overlapped. The decision may be made in the 1 to 6 order but the "staff work" to enable the decision depends on the lead time to get clarity.
    • bigadaj
    • By bigadaj 11th Jul 17, 8:49 PM
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    bigadaj
    You really need to do some more reading as you don't appear to understand the basics of investment principles.

    With respect to investment platforms then the cheapest percentage brokers are around 0,25%, this can be beaten by fixed fee providers if you have sums to invest larger than the low tens of thousands, depending on how much trading you do.
    • Glen Clark
    • By Glen Clark 12th Jul 17, 8:18 AM
    • 3,825 Posts
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    Glen Clark

    BUT. HL charge a platform fee of .45% so overall they will be much less than buying direct.
    Originally posted by ceblackshaw
    Why not buy an Exchange Traded Fund (ETF) and avoid that?
    HSBC, Vanguard, Blackrock, all do FTSE100 ETFs with annual charges below 0.1%
    HSBC Euro 50 is only 0.05%
    “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair
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