H-L introduces a Tracker Platform Charge

jamesd

SnowMan wrote: »

the lower charging 'clean' class of HSBC trackers becomes available elsewhere see here

At that page HSBC says "Our Fund Managers aim to minimise costs and risks inherent in tracking an index via a rigorous investment process."

I wonder just what their fund managers do to reduce the risks of a tracker while still being a tracker...

koru

SnowMan wrote: »

Hargreaves Lansdown are going to be look even more expensive for trackers, especially the HSBC ones, when the lower charging 'clean' class of HSBC trackers becomes available elsewhere see here for the new charges on the clean HSBC trackers.

Good spot, SnowMan. Looks like HSBC are determined to have the lowest tracker fees of anyone. Will be interesting to see if these new fund classes arrive on retail platforms (ATS, iii, BestInvest).

SnowMan

TCA wrote: »

I'm beginning to lose the plot with the charging terminology. I'm used to seeing TERs and AMCs seemingly used as interchangeable.

In the above link from SnowMan, HSBC are showing an estimated ongoing charges figure (OCF), so how do I compare this to say a Vanguard tracker, which only indicates TER/AMC?

The question of AMC, TER and OCF has already been answered so I won't repeat that.

But looking at the actual figures for FTSE all share trackers for example

- The Vanguard FTSE all share tracker has a TER of 0.15% pa

- The HSBC FTSE all share tracker after the charge reductions has a 'TER' of 0.18% pa.

So not much in it although HSBC is marginally more expensive.

There are some differences though:

a) You cannot get the Vanguard fund direct from Vanguard, so you are likely to incur extra charges in getting hold of that for example platform charges (actually you can if you've got over 100K to invest and don't want an ISA wrapper). It looks like you will be able to get the HSBC fund from HSBC without incurring extra charges

b) The Vanguard fund has a stamp duty reserve tax (SDRT) of 0.5% applied when you buy the fund. Crucially this is paid into the fund. If you hold the Vanguard fund for an 'average period' you can expect roughly to get the 0.5% back through extra return on the fund so you can sort of ignore that. If you actually hold the Vanguard fund for less/more than the 'average' period you may expect to lose/gain slightly relative to the HSBC method of having no SDRT, but that oversimplifies slightly.

c) The costs of buying and selling stock and rebalancing (that are not reflected in the TER) are additional and may vary between HSBC and Vanguard. However it is hard to get at these figures so hard to say.

d) the size of the tracking error (relative to the FTSE all share total return index) will vary between the two funds. The tracking error is fairly consistent for the Vanguard fund because of the way it applies the SDRT, whereas the HSBC tracking error wobbles from side to side depending on whether the fund is priced on a bid or an offer basis.

jamesd

SnowMan wrote: »

b) The Vanguard fund has a stamp duty reserve tax (SDRT) of 0.5% applied when you buy the fund. Crucially this is paid into the fund.

They claim it's to allow for SDRT but it can't all be for SDRT unless there are no sales at all. If there were sales the sales would reduce the SDRT liability because there wouldn't be a need to buy new shares to match all of the purchases. In effect it's a subsidy to increase their reported performance using a number that isn't shown in performance tables.

SnowMan wrote: »

If you hold the Vanguard fund for an 'average period' you can expect roughly to get the 0.5% back through extra return on the fund so you can sort of ignore that.

It's quite a claim because I've had a FTSE tracker with 0.1% AMC/TER in a work pension. Even without that, the HSBC TER is just 0.03% higher than the Vanguard one so it'd take 0.5 / 0.03 = 16.7 years holding time to break even. That makes the Vanguard fund a worse deal on charges unless you really think that you are going to be holding for at least that long.

Vanguard also say that their funds have a preset dilution levy charged on purchases.

SnowMan wrote: »

d) the size of the tracking error (relative to the FTSE all share total return index) will vary between the two funds. The tracking error is fairly consistent for the Vanguard fund because of the way it applies the SDRT, whereas the HSBC tracking error wobbles from side to side depending on whether the fund is priced on a bid or an offer basis.

"The HSBC funds referred to are sub-funds of HSBC Index Tracker Investment Funds, an Open Ended Investment Company". Vanguard FTSE tracker: "Structure: UK OEIC".

There is no bid or offer basis for pricing of an OEIC and both are OEICS so there is no bid or offer basis pricing that could apply. Either could be using a pricing tunnel, the equivalent mechanism used by an OEIC. Since the Vanguard fund says it has a fixed dilution levy it may be the case that the HSBC fund is using a pricing tunnel and the Vanguard fund isn't.

Since the tunnel would vary based on supply and demand it's a fairer mechanism than a fixed dilution levy, just as charging only the real SDRT would be a fairer mechanism than using a fixed amount to boost the reported fund performance.

The_Accumulator

SnowMan wrote: »

Unofficially it looks like the 'clean' HSBC trackers (the TER is 0.1% lower than the existing class) will be available around mid-November direct from HSBC and without any additional platform fee (I say direct, it would be more accurate to say via the HSBC Global Investment Centre).

Hey Snowman, how do you know the 'clean' trackers will be available from HSBC in November without platform fee? I rang HSBC Global Asset Management today and they said the funds weren't available directly from them. Not that I put too much faith in that, the person I spoke to didn't seem particularly clued up. It'll be amazing if they do make them available without a platform fee, but will blow everyone else out the water.

amictus

SnowMan wrote: »

Hargreaves Lansdown are going to be look even more expensive for trackers, especially the HSBC ones, when the lower charging 'clean' class of HSBC trackers becomes available elsewhere see here for the new charges on the clean HSBC trackers.

Unofficially it looks like the 'clean' HSBC trackers (the TER is 0.1% lower than the existing class) will be available around mid-November direct from HSBC and without any additional platform fee (I say direct, it would be more accurate to say via the HSBC Global Investment Centre).

So not only will HL be charging £24pa per HSBC tracker fund (so £96pa if you hold 2 funds both with and without an ISA wrapper for example) but they will charging an extra 0.1% annual charge as well.

It is worth remembering that in a news article a while back a HSBC spokesperson said they were paying commission to HL on the HSBC trackers possibly 0.125% per annum (HL won't tell us what commission they receive because they don't seem to want to be open with their clients unlike some other platforms).

So HL won't want to offer the clean classes of HSBC trackers through their platform (without imposing further holding fees) because they will lose their secret commission and we know how greedy they are.

The current pricing structure for investing in HSBC tracker funds directly or through the HSBC Global Investment Centre is very attractive - low TER/OCF and no holding or trading fees. But how long will this last? Why would HSBC continue to offer this when other platforms have or will soon be introducing holding or trading fees with the regulations from RDR and plaftorm reviews? Surely it's just a matter of time before they also begin charging similar fees to use their platform and trackers. Well that's the thought process that's stopping me committing for a while yet.

My recent related thread in case it is of interest:

https://forums.moneysavingexpert.com/discussion/4159607

grey_gym_sock

jamesd wrote: »

the HSBC TER is just 0.03% higher than the Vanguard one so it'd take 0.5 / 0.03 = 16.7 years holding time to break even.

but you're assuming that the dilution levy is lost money. since it's paid into the fund, you actually benefit from it as well as paying it, and the longer you stay invested, the greater the benefit.

supposing HSBC are doing something similar to the dilution levy by means of a pricing tunnel (i dunno the term, actually, but i can guess what it means ), but are not overdoing it like vanguard ... (can we find out about this?)

... then vanguard's overdone dilution levy is a zero-sum game among investors in their funds. i.e. if you hold vanguard funds for the average time their investors do (whatever that may be), the dilution levy is neutral to you, and your advantage over an HSBC fund is the difference in TER e.g. 0.03% p.a. if you hold for longer than average, vanguard is more advantageous (than 0.03% p.a.); if shorter than average, less advantageous.

your point that HSBC will be better for shorter term investments, vanguard for longer, is correct, but the cut-off point will be lower than you calculate. to recalculate, we'd need some assumptions about average holding times and how overdone the dilution levy is.

DavidLaGuardia

All this talk of saving 0.1% here and there is irrel;evant when it comes to the tracker's actual performance relative to the market is it based on.

There is litte correlation between what a tracker charges and what the overall cost is. Retail funds suffer the expenses incurred through investment turnover. Vanguard has less of this problem compared to HSBC.

SnowMan

The_Accumulator wrote: »

Hey Snowman, how do you know the 'clean' trackers will be available from HSBC in November without platform fee? I rang HSBC Global Asset Management today and they said the funds weren't available directly from them. Not that I put too much faith in that, the person I spoke to didn't seem particularly clued up. It'll be amazing if they do make them available without a platform fee, but will blow everyone else out the water.

Welcome to the forum.

Having seen the press reports of the new clean class, I rang up the HSBC Global Investment Centre this morning to ask whether they would be available on their own platform (as I've got HSBC trackers on the HSBC Global Investment Centre at the moment). The person I spoke to DID seem to know what they were talking about.

They said they were planning to bring the clean class of HSBC trackers onto their platform on 15th and 16th November.

I specifically asked and they said there would be no additional platform fee to hold the clean 0.1% amc class. As HSBC get the amc, as the platform and the fund manager are effectively the same, then it seems workable as a business model, especially when you consider the commission HSBC save by an investor not going via the likes of HL. OK HSBC have to do the admin that the platform does but they save on the marketing element of the commission they pay to the platform.

For those with existing HSBC trackers at the 0.25% amc it will be necessary to switch from those old trackers to the new class of 0.1% amc trackers in the same way that you would switch between unrelated funds. You may have to wait a few days after the 15th or 16th to actually do the switch.

They also said that they were still preparing the paperwork and documentation and I think they said they were going to be writing out or messaging existing customers at some point to tell them about all this.

Obviously this is reliant on what I was told being correct and to be fair they said this was what they were planning (and I guess could change). So it is important to say we need to wait until the plans are officially announced to confirm any of this.

I've been singing the praises of the Global Investment Centre for a while for holding the HSBC tracker range. This is going to make it even better and super cheap.

For investors to get the cheapest trackers common sense says that business models that involve going direct and cutting out the middle man (such as HL) have to provide the framework for trackers to be made available at the cheapest cost. And this seems to be what is happening here.

SnowMan

jamesd wrote: »

It's quite a claim because I've had a FTSE tracker with 0.1% AMC/TER in a work pension. Even without that, the HSBC TER is just 0.03% higher than the Vanguard one so it'd take 0.5 / 0.03 = 16.7 years holding time to break even. That makes the Vanguard fund a worse deal on charges unless you really think that you are going to be holding for at least that long.

As grey gym sock points out that's completely wrong because you have all the 0.5% SDRTs of all the investors putting money in between when you buy in and when you sell going into the fund, and you get your share of those 0.5%s which you wouldn't get with HSBC. It is when your share of those 0.5%s exactly equals the amount you yourself contributed in SDRT that you can effectively ignore SDRT.

The 0.03% difference in TER is a completely different affect to this.

So if the average hold time for SDRT to cancel out happened by pure co-incidence to be 16.7 years also (and I have no idea what it actually is) then the break even point taking into account both affects would be very roughly half of 16.7 years, or 8.3 years.