Confused - Differences between Corp Bond ETF and Managed Fund

mr_fishbulb

Whilst doing some reading about how index tracker ETFs compare with managed funds in the same index, I started looking at the corporate bond area and have a few questions.

Hargreaves Lansown send me their regular guff in the post and are currently hyping about putting a corp bond fund in an ISA to get a cash beating yeild. One of their popular funds is the Invesco Perpetual Corp Bonds fund - http://www.h-l.co.uk/funds/security_details/sedol/3305069

Looking at this, it pays a 6.98% yield and costs 0.85% (1-0.150) per year in management fees.

iShares have a product called iShares £ Corporate Bond (SLXX) - http://uk.ishares.com/fund/fund_overview.do?fundId=157495 (you need to click on United Kingdon then Retail Client).

This pays a 7.83% flat yield and 9.31% gross redempiton value (not sure what those mean). And a Total Expense Ratio (TER) of just 0.2%

Looking at this, it is a no brainer to go with the iShares product over the Invesco Perpetual one. What am I missing?

purch

Looking at this, it is a no brainer to go with the iShares product over the Invesco Perpetual one. What am I missing?

It is basically the same argument as with Equity Funds. The ETF will track the chosen Index (Long Dated Liquid Corporate Bonds), whilst the Managed Fund invests where the manager chooses within his/her mandate.

The Invesco fund holds Government debt, and can hold a proportion of it's holdings as Cash. The ETF can only hold what the Index includes.