H-L introduces a Tracker Platform Charge

SnowMan

gadgetmind wrote: »

100% in UK equities? Not exactly balanced and diversified!

I have been very close to 100% in UK equities for some time now.

My logic is that I live in the UK and therefore investing primarily in the UK stockmarket makes sense given my future liabilities (e.g. spending in my retirement) are UK based also.

There is also an argument that says the FTSE all share also includes a lot of overseas income from global companies, and economies are interlinked these days, although that wouldn't be my main argument.

Investing overseas does introduce further risks in particular a currency risk.

You are also having to make a decision on which economies are likely to outerperform current expectations valued into their stock markets. I think we can all see that long term economies like China are prospering while the UK and US are stagnating in comparison. But that doesn't mean you should invest in China unless you think that factor has not been reflected in current stock market valuations.

I am also not convinced that tracking works so well for other stock markets where the market is 'less perfect' so that puts me off a bit also.

I realise that my predominently UK approach is likely to be frowned on by the majority, but so be it.

In context to the new HL SWIP all share tracker, a switch into that from the HSBC all share tracker doesn't change your portfolio mix at all in terms of investment sector.

FRS

The SWIP tracker does seem extremely good value. It's a shame HL decided to announce the platform fees before the new range of trackers. If they done it together it would of saved me a couple of weeks of pondering what to do. Think for now I'll switch into that tracker and see what happens with the other platforms.

SnowMan

koru wrote: »

Some interesting figures in their comparisons of the different trackers. SWIP and Vanguard are the only ones that do daily rebalancing of the portfolio. I didn't realise that many of the others only rebalance once a quarter or half year, so it is not surprising that they track the index poorly. You might think that this would lead to a higher TER for these two trackers, but they are in fact the cheapest. However, I assume that if they are rebalancing on a daily basis they must have higher transaction costs (and these are not included in the TER).

Shame on Henderson, who have the nerve to have a TER of 1.18% for their UK tracker, which is more than 10 times higher than SWIP.

To me the only advantage of a tracker that rebalances often (and let's asssume has a low tracking error although it is more complicated than that because of the use of derivatives) is that you can more easily check that nothing untoward is happening and it is doing 'what it says on the tin'.

I would definitely opt for a tracker which didn't rebalance so often (all other things being equal) because transaction charges (not reflected in the TER) are reduced and transaction charges will in the long term bring down returns.

There is nothing magical about wanting a return exactly equal to the FTSE all share in a year, relative to receiving (say) FTSE all share + or - 1% with equal probability. As long as a tracking error is not systematic it doesn't concern me.

koru

SnowMan wrote: »

To me the only advantage of a tracker that rebalances often (and let's asssume has a low tracking error although it is more complicated than that because of the use of derivatives) is that you can more easily check that nothing untoward is happening and it is doing 'what it says on the tin'.

I would definitely opt for a tracker which didn't rebalance so often (all other things being equal) because transaction charges (not reflected in the TER) are reduced and transaction charges will in the long term bring down returns.

There is nothing magical about wanting a return exactly equal to the FTSE all share in a year, relative to receiving (say) FTSE all share + or - 1% with equal probability. As long as a tracking error is not systematic it doesn't concern me.

[STRIKE]But these funds systematically trail the market by up to six months. If you believe the market reflects the best information available at any particular time, wouldn't it be better to react immediately? When bank shares tanked in 2008, their weight in the index would have fallen, and daily rebalancing would have mirrored this closely. Some of these other funds would have been overweight in banks (compared with the index) for several months. I realise that sometimes the lag might turn out in your favour, but will it just balance out over time?[/STRIKE]

Edit:Sorry, ignore this. I was confusing rebalancing with replication.

Nanpy

gadgetmind wrote: »

Good to see the Vanguard LifeStrategy on there. £24 a year for those is a bargain!

I went and had a look at the Vanguard LifeStrategy products and found a fair explanation of how they work here:

http://monevator.com/2011/10/18/vanguard-lifestrategy/

That actually looks like exactly what I'm after at the minute, so thanks for the heads-up.

Rollinghome

FRS wrote: »

The SWIP tracker does seem extremely good value. It's a shame HL decided to announce the platform fees before the new range of trackers. If they done it together it would of saved me a couple of weeks of pondering what to do. Think for now I'll switch into that tracker and see what happens with the other platforms.

The only minor caution might be to see how well it tracks. Despite HL saying that the launch date was 01-11-2000 at 100p it seems to be a totally new fund and still at 100p. I don't see anything inherently wrong with a small tracking error unless costs mean it always goes against you.

gadgetmind

Rollinghome wrote: »

T Despite HL saying that the launch date was 01-11-2000 at 100p it seems to be a totally new fund and still at 100p.

It's launched but hasn't yet opened.

HL say "If you would like to invest in this fund at the fixed offer price we need to receive your order by close of business on 12 December 2011 (midnight for orders placed online)."

SnowMan

koru wrote: »

But these funds systematically trail the market by up to six months. If you believe the market reflects the best information available at any particular time, wouldn't it be better to react immediately? When bank shares tanked in 2008, their weight in the index would have fallen, and daily rebalancing would have mirrored this closely. Some of these other funds would have been overweight in banks (compared with the index) for several months. I realise that sometimes the lag might turn out in your favour, but will it just balance out over time?

Let's say that a fund is exactly balanced at some point i.e. the weightings are identical to the index. Assuming there are no net inflows or outflows into the fund, no changes in which companies are in the index, no right issues etc etc etc. Then.......

If an individual share price collapses unilaterally then its weighting in the index and fund itself both fall automatically. So there is no need to adjust.

Let us now suppose there is a net inflow into teh fund on a particular day. it is unlikely to be cost effective to use that inflow on a particular day to buy 630 shares (weighted by market capitalisation) on that day.

So all I am saying is that the rebalancing shouldn't be done precisely but gradually based on principles of keeping transaction costs down. If using derivatives keeps costs down then that is fine also.

If the fund weightings are different to the index weightings because the rebalancing isn't done daily that is fine. Any underweighting or overweighting because the rebalancing isn't done immediately can result in underperformance or overperformace relative to the index with equal probability.

My hunch is that the extra volatility through not rebalancing, relative to the volatility in the index itself, is very small and it doesn't justify the additional costs to remove that volatility.

RobStaffs

Are trackers eligible to be included in your ISA allowance?

gadgetmind

RobStaffs wrote: »

Are trackers eligible to be included in your ISA allowance?

Are you asking if you can hold a tracker in a Stocks and Shares ISA? If so, then yes, very much so. All you can't hold in a S&S ISA is cash or anything "cash like".