Looking into investing into a Low cost index fund

life_nit

Thanks for responding Ilya, your posts have given me lot's to think about

You mentioned below, exactly what it is I'm now looking for in a nutshell. Yet I'm not sure why I'm struggling so hard to compile a short-list of these global index trackers in the marketplace which are close to being good value.

But I'll share what I've found Perhaps you can share your wisdom on any of them too (I am being cheeky I know )

Edinburgh US Tracker Trust plc

Details of what it invests in

Ilya_Ilyich wrote: »

I have more confidence in a cheap and well-diversified index fund.

From what I've researched they have a AMC of 0.2% p.a and a TER of 0.4% which seem's quite good. But I'll confirm if this is accurate tomorrow with them.

Legal and general US trust.
(This appears to be an all share for the us)
Charges are higher at 0.65 AMC and 0.17 for other expenses (total not given, - seems not so good.

And last one i've found so far is HSBC American index fund

Which has an AMC of 0.25% and a TER of 0.28.

Kind regards,

Daniel

Ilya_Ilyich

http://www.hl.co.uk/funds/index-tracker-funds/view-index-tracker-funds has a decent shortlist of funds you could look at (no requirement to buy them through HL, it's just a decent starting point to see what's available in different sectors). There are other funds available so this certainly isn't all though (Blackrock offer cheaper trackers then the ones on that page but I believe you'd need to go through an IFA to access them).

Of the US trackers you mention -- both the Edinburgh Trust and the HSBC invest in the S&P 500, the index of the 500 largest US companies. The L&G fund invests in the FTSE World USA Index which I can't find well documented, but it contains 670 companies so I'm assuming it's fairly similar to the other two. There are approximately 4000 companies in the US equivalent of the all-share so all these funds would be somewhat biased towards larger companies (something like our FTSE 100). For comparison Vanguard's US index holds 3000 companies.

Also note that as the Edinburgh Trust is an investment trust rather than a unit trust it is bought and sold in the same way as shares and you'd need to deal with the dividends in some way - they can probably be reinvested but this may come with a charge depending how you buy the fund.

Of the three funds you list I favour the HSBC the most (and have used it in the past) as the others offer higher fees for not much better exposure. HSBC offer a range of trackers for different regions with similar TERs so they may be worth a look, but you'd need to hold a number of funds to get good diversification.

Jegersmart

Ilya_Ilyich wrote: »

I'm trying to think of a reason for this but I'm struggling. Can you explain why world stock market performance would roughly equal GDP growth? As I understand it the figures are if anything negatively correlated. Are you expressing the growth in nominal or real terms? As I personally would be delighted with a 4% real return in the long-term.

Hi Ilya

Maybe I am not expressing myself "correctly" as I am not economist!

From the late 1970's to now, the "growth" in stock markets, housing prices and most other things have been facilitated by the massive expansion of debt - on a sovereign, corporate and personal level. In my view, in the longer term this is very unlikely to continue in at least developed parts of the world - so what will this mean going forward? There are many factors that will probably come into the equation that perhaps have not featured in the past so the debate could take on massive dimensions....so I will try to be brief

Growth has also been facilitated by strong population growth globally in the last 30-40 years - all potential taxpayers coming into the system, all taking a slice of finite resources to carve out a life for themselves and all taking on debt to "further" their lives. Most of the population with any type of income or employment is effectively leveraged. My view is that the planet has finite resources, finite space and finite capacity for supporting life. In the developed Western world we have managed to get a headstart and have grown partially *at the expense* of other less developed nations such as China, Latin America, Asia in general - but because there was more "slack" in the system we were not stepping on peopls's heads in order to get to the level of "society" we have today. In the future, it will be somewhat different in my view, because we are now 7 billion people so as China and other large developing nations become powerhouses it will do so at the expense of others to a larger degree because our capacity to produce energy, food, transport and so on as a planet is much closer to the limits. It means in effect that developed countries will suffer to a degree to allow the growth of other nations - i.e. make room - because the world has limits (at least at themoment).

Oil and gas is probably the elephant in the room - because we are a petroleum civilisation. There are other fossil fuels of course like coal which are also important - but we simply cannot at the moment replace our energy and other needs with other sources - and depending on the future reserves and discoveries of reserves thai may have a greater impact on population numbers that few of us can imagine.

This is oversimplified and shortened to the point of futility, but I am trying to keep it shortish....basically what I see is that as emerging countries grow, the developed countries may suffer or stagnate as a result because there is no room in the global economy otherwise. This will cause issues, because the developed world is awash in debt which in the current paradigm needs to be paid off, but because all debt is interest-bearing we need growth to be able to do that. So I see long periods of stagnation and periods of no growth in developed markets, where as on the flip side the emerging countries *will* grow as they have less debt, more competitive labour, more population growth etc etc.

So, all this is a theory of course, but my view is that if one invests fairly evenly across the globe - especially in a tracker then the growth *overall* will be quite low as certain areas will grow and others will actually contract. As you rightly point out, growth is not necessarily reflected in stockmarkets in the same way but that is also because stock markets tend to overshoot in terms of prices/indices in both directions due to the price discovery process of testing price levels constantly. If you look at the inflation adjusted long term average of gains in the stock markets, the actual gain is in the lowish single digit per year if I remember correctly (S&P) - and I can see this slowing or flattening out as we reach potential population limits and of course debt limits....where we will have to default at some point potentially. My position is that I want to do my best to better that low average return - and for 15 years I have done that very well - but not with a single tracker product. Could I have done even better with tracker products? Well, the historical graphs of markets tell me definitely not but I could be wrong. If the OP or anyone else feels that the best way to beat the long term overall average gain is to use global trackers then that is fine - I just think personally that certain areas will grow more than others and whilst I will choose those and manage to a point, I also want an active manager picking individual stocks, bonds or whatever to assist me in that - at a price of course.

Apologies for the very long rambling post which doesn't cover much that perhaps should be discussed. My point is not to be right - I could well be wrong - but to encourage debate and thought - because I am sure that we can probably all agree that the future will probably look nothing like the past - and I simply don't accept that investing in equities over 30 years is a no-brainer any longer without some effort on *someone's* behalf - be it yourself or fund managers or whatever.

Good luck all!

J

wriggly

Linton wrote: »

Low cost shouldnt be your sole criterion. Far more important is what the fund invests in. The FTSE (100 or Allshare) has basically gone nowhere in say 12 years but I guess the wild fluctuations have made it pretty good for drip feed investing.

Selecting a time period that starts just before the dot-com crash might be affecting your perceptions slightly.

FTSE All-share return p.a.
12 years: 0.25%p.a.
9 years: 6.4%p.a.
6 years: 0.33%p.a.
3 years: 16%p.a.

Shares are volatile and you can easily find periods when the returns would be bad, even negative, if you bought only at the beginning and sold only at the end.

life_nit

Great information being shared in the thread

Knowledge certainly is power!

I've now made a choice between:

HSBC American Index Fund. (S&P 500 - has stocks in 506 companies)

and

Vanguard (S&P Total market index - stocks in 3801 companies)

I like the idea of having much more diversification with the vanguard fund compared to the HSBC one.

However the difference in costs I'm likely to face over this horizon could sway the decision for me.

It's somewhat clear that HSBC Index has the following charges from phoning them (as of 31st dec 2011):

AMC 0.25%
TER 0.28%
No initial charge.
No switching charge.

Vanguard as of 31st dec 2011:

AMC 0.2%
TER 0.2%

Which now leaves me to find the cheapest platform for a vanguard index! and see how it look's compared to HSBC expenses overall.

If anyone can offer any opinions to what a top platform might currently be, that would be much appreciated.

Don't really like the idea of having to use a platform and pay additional costs but It may not be that much of a concern if I'm not touching it for a long time and if the fund is as that much more diversified.

Daniel

sabretoothtigger

all share has been fairly pants for far longer then it ever should have been

Try the 250 index for actual growth, 100 is more income and commodities based and its also biased to USA. Im holding ft100 but I will sell for asia this spring


I was looking at asia pacfic tracker , barings maybe but I will probably go for this income fund taking from asia its a fairly new idea that foreign stocks like this can be higher dividend paying.
I dont think its overplayed, it just requires that they are able to sell goods as they have done which I think is true very long term, short term its seen as high risk hence the premium

Based on the income it could be called negative cost ie. I expect growth also

Over the past decade arguably equity income investing has become more important, as interest rates have fallen substantially and the yields on cash and bonds have become leaner. It is also true that a "dividend culture" has developed in other areas of the world, notably in the dynamic economies of Asia.

The Newton Asian Income Fund was launched in November 2005 and presently yields an attractive 5.1% (net, variable and not guaranteed). Jason Pidcock, the fund manager, has built an impressive track record since launch. He has grown the fund's income pay-out each year as well as achieving capital growth for investors although, past performance is not a guide to future returns.

The fund is a concentrated portfolio of approximately 40 to 50 stocks which means each has the ability to contribute significantly to returns, although this is a higher risk approach. Jason Pidcock uses Newton's trademark thematic process to identify themes set to drive long-term growth, and companies set to benefit. He clearly wants stocks that will generate an income, but he will invest in companies with lower yields, but where he expects strong dividend growth. However fund charges are taken from capital which reduces the potential for capital growth.

Current themes include 'global realignment'; that is a change in the balance of economic power from the West to emerging economies in the East. For example, he favours consumer companies in Asia rather than the West, where many consumers face years of debt repayment. He also likes 'smart companies' such as Taiwan's HTC which has grown to challenge Apple's dominance of the smartphone market.

Property, telecommunications and infrastructure assets, such as toll roads, tend to be the highest yielding areas for the fund. Such companies fit the 'population dynamics' theme as young, increasingly affluent populations buy properties, go shopping, embrace technology and become increasingly mobile. Hong Kong listed NWS Holdings currently features in Jason Pidcock's top ten holdings. Its assets include roads, energy and water infrastructure as well as managing bus and ferry services. He can also invest in smaller companies which can be more volatile than their larger counterparts.

At a country level the fund offers exposure to high yielding Australian companies which account for approximately 25% of the portfolio, as well as higher-growth Asian economies such as Singapore and Taiwan which account for 12% and 13% of the fund respectively. Companies in India and South Korea tend to yield less than counterparts in the region. Subsequently the fund often has underweight positions in these countries. An investment in this area is high risk so a long term horizon is essential giving investors' time to ride out ups and downs.

High yielding funds like this tend to target companies with predictable profits, lower debt and dominant market positions, as they stand a better chance of maintaining or growing dividends in all environments. This means such funds can outperform in falling markets, but could lag behind in a strongly rising market. Currency movements will affect the capital value as well as the level of dividend which could benefit investors if Asian currencies strengthen against Sterling, but the reverse could happen if they weaken.

Over the longer term Jason Pidcock has shown that a patient income investing strategy works well in the region, although there are no guarantees this will continue. For long term income seekers looking to diversify away from the UK I believe this fund is worthy of consideration therefore we have added it to the Wealth 150.

psychic_teabag

There are various articles on monevator.com on platforms for trackers, including vanguard. eg http://monevator.com/2011/12/13/hargreaves-lansdown-vanguard-funds/ - it's worth a good look round that passive-investing blog if you haven't seen it before.

On the extra diversification : assuming both trackers are capitalization-weighted, the extra contribution from the smallest companies may be marginal. Similar to ftse-100 vs ftse-all-share here : I think the all-share follows the 100 pretty closely.

Jegersmart

sabretoothtigger wrote: »

all share has been fairly pants for far longer then it ever should have been

Try the 250 index for actual growth, 100 is more income and commodities based and its also biased to USA. Im holding ft100 but I will sell for asia this spring


I was looking at asia pacfic tracker , barings maybe but I will probably go for this income fund taking from asia its a fairly new idea that foreign stocks like this can be higher dividend paying.
I dont think its overplayed, it just requires that they are able to sell goods as they have done which I think is true very long term, short term its seen as high risk hence the premium

Based on the income it could be called negative cost ie. I expect growth also

FWIW, I use the Newton Asian Income at certain times when I want a different risk profile exposure to the region due to ongoing uncertainty etc. - i.e. I am usually in Aberdeen Emerging, Fidelity South East Asia and some others when things look good or there has been serious pullback - and rotate more an more into other asset types or income funds when things start to look toppy. In my experience, the Newton Asian Income is less volatile and of course pays decent dividend compared to the more "risky" type of fund above. I am aware that they do not have exactly comparable exposure but I do use the "type" of fund when I feel a bit cautious......for right or for wrong ofc It certainly has done quite well for me...

J