ETFs, trackers & dividends

gadgetmind

jamesd wrote: »

HSBC has a tracker that does it with less indirection. The Vanguard funds don't, their initial charges aren't transparent and don't seem to be used exclusively for what they say they are for, though they are quite popular.

I prefer the Vanguard trackers because their up-front fees work better for me than hiding dealing costs and SDRT in tracking error.

In some pots I use mostly accumulation units, but for those not receiving fresh funds, I use income ones instead as I can then use the income to rebalance.

Linton

armour wrote: »

Thanks for your replies.
Unfortunately, the contracted out pot is only worth £15K. It's a minor part of my overall pension planning at the moment but, as I expect to become liable for 40% tax this year, I want to invest the excess (up to £5K/year) in this pension.

The reason I moved it is because it has actually lost money in a supposed managed fund.
Upon deeper investigation I found that my poorly performing fund (0.7% charge) was invested in a host of other poorly performing funds (charges varied)...... Each of them bought from the same fund company as the original.
Where is the incentive to do best by the customer here?

Can somebody direct me to an index tracker which actually buys index shares and distributes dividends in a fair transparant way?

Over what time period have you measured the performance? The past year has on the whole been pretty poor for equity investment returns globally. Although people focus on charges, a fund's return is far more dependent on what sort of things it invests in and the behaviour of the world economy. Low charges cannot turn a poor, inappropriate, or unlucky choice of investment sectors into a good one. A fund investing in the right things can provide a very good return despite high charges.

jamesd

gadgetmind wrote: »

I prefer the Vanguard trackers because their up-front fees work better for me than hiding dealing costs and SDRT in tracking error.

And you prefer that to charging something that's supposed to be SDRT but is actually higher than SDRT if there are any redemptions at all, so it's a cross-subsidy by new buyers for existing holders that artificially reduces the tracking error? The Vanguard funds do still have to include dealing charges somewhere, they can't just eliminate them, though they can have an initial charge that makes them less appropriate for those who will vary their holdings. I'm tempted to eliminate Vanguard from the funds I'll use as an ethics test failure for using the initial charge as a hidden subsidy.

The 0.5% initial charge of their UK fund makes it uncompetitive for those who may switch investments. For those who are certain that they won't it's competitive compared to many funds if they are sure that they will hold it for long enough to recover that 0.5%. That'll never happen at HL, which has the SWIP FTSE tracker at 0.07% AMC compared to 0.15% for Vanguard. Ignoring that there's the HSBC one at 0.25% and eventually the Vanguard fund will end up beating that one.

gadgetmind wrote: »

In some pots I use mostly accumulation units, but for those not receiving fresh funds, I use income ones instead as I can then use the income to rebalance.

Makes sense to me as one way of doing things and at least does avoid the entry costs of some funds and spread for most, whether that's explicit of implicit.

gadgetmind

jamesd wrote: »

And you prefer that to charging something that's supposed to be SDRT but is actually higher than SDRT if there are any redemptions at all, so it's a cross-subsidy by new buyers for existing holders that artificially reduces the tracking error?

Yes, I do! I prefer this because it means that I benefit long term.

I'm tempted to eliminate Vanguard from the funds I'll use as an ethics test failure for using the initial charge as a hidden subsidy.

That's entirely your choice. I like Vanguard for their low fees, low tracking error and their transparency on issues such as securities lending.

The 0.5% initial charge of their UK fund makes it uncompetitive for those who may switch investments. For those who are certain that they won't it's competitive compared to many funds if they are sure that they will hold it for long enough to recover that 0.5%. That'll never happen at HL, which has the SWIP FTSE tracker at 0.07% AMC compared to 0.25% for Vanguard. Ignoring that one there's the HSBC one also at 0.25% so again the Vanguard fund will never recover the initial cost difference.

My UK holdings are mostly via direct equities and I have therefore reduced my tracker weightings.

Regards the SWIP Tracker, I'll be interested to see how the tracking error goes over the next 5-10 years.

What is *very* good is that we now have plenty of good options and we're free to choose based on investing strategy etc.

Linton

gadgetmind wrote: »

Yes, I do! I prefer this because it means that I benefit long term.



That's entirely your choice. I like Vanguard for their low fees, low tracking error and their transparency on issues such as securities lending.



My UK holdings are mostly via direct equities and I have therefore reduced my tracker weightings.

Regards the SWIP Tracker, I'll be interested to see how the tracking error goes over the next 5-10 years.

What is *very* good is that we now have plenty of good options and we're free to choose based on investing strategy etc.

Curious.

Why? Are you expecting to outperform The Index? Or is your UK portfolio a diy tracker - if so how's the tracking error?

armour

Thanks for your reply Linton.
Here's the fund;
http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=MTMP&univ=P

It was sold to me back in 1988, purely for "contracted out" NI rebates. after about a year I became eligible for my company's FS pension scheme so the rebates went to this instead. The FS scheme ceased in 2006 so, since then, the NI rebates went to the original pension.
When I looked into it. I found that the amount of rebate paid into the pension is more than the value of the pension.
I'd welcome your thoughts, particularly on the policy of investing exclusively in their own poorly performing funds.

Jamesd, you say HSBC may do something like the product I've described, Can you post me a link please?

gadgetmind

Linton wrote: »

Why? Are you expecting to outperform The Index? Or is your UK portfolio a diy tracker - if so how's the tracking error?

OK, I wasn't being entirely accurate. I do have UK holdings as part of a fund in my GPP, and I do have Vanguard's UK Equity and Equity Income trackers in my SIPP, but I deliberately reduced these to reflect my wife's direct equity holdings.

These direct holdings are mostly UK blue chips with some mid cap thrown in for good measure. She has 20+ holdings that have been chosen based on dividend record, sector spread, p/e, and a few other factors including "my nose".

This portfolio is currently 5% of our total holdings, but this will increase over the years as it's where money goes that can't go into pensions or ISAs. It's designed to generate dividend income, which will be invested pre-retirement and then gleefully spent at Oddbins post retirement.

Regards how it's performing against the index, I'm keeping enough records to be able to work this out in a few years time, and shorter term I'm just looking at the return on money thrown into the pot.

Over 16 months, we're up 14% on capital and another 4.8% via dividends. However, the money has been invested at various times over these 16 months (but mainly on the market's bad hair days) and there is some "dividend lag" so straightforward comparisons aren't easy.

Oh, and the further complicate things, this pot also holds our preference shares, but I have a spreadsheet that tracks things separately.

As this pot grows, I might well start using a more passive approach and/or more ITs, and keep the directly held equities at around 5%.

Linton

armour wrote: »

Thanks for your reply Linton.
Here's the fund;
http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=MTMP&univ=P

It was sold to me back in 1988, purely for "contracted out" NI rebates. after about a year I became eligible for my company's FS pension scheme so the rebates went to this instead. The FS scheme ceased in 2006 so, since then, the NI rebates went to the original pension.
When I looked into it. I found that the amount of rebate paid into the pension is more than the value of the pension.
I'd welcome your thoughts.

Jamesd, you say HSBC may do something like the product I've described, Can you post me a link please?

From the Trustnet data its recent returns do look pretty mediocre but I am a little surprised when you say that after nearly 20 years it is worth less than you have paid in. The fund's return over the past 10 troubled years has been a total of 69% (about 5% annual average) - and that is after all charges made by the fund managers.

Edit: Perhaps not surprised: 10 years ago was in the crash following the tech bubble so the negative return looks more likely.
2nd Edit: Over 5 years in the bottom 25% of all pension funds. So yes a mediocre fund I am afraid.

gadgetmind

It seems to have managed to underperform its index over all time periods and trustnet still give it a one crown rating!

armour

I would say "mediocre" is far too good an adjective in this case.
Only about £1000 was invested 20 yrs ago. the rest was invested since 2006.
Surely one could expect the fund one is investing in to seek out better returns than it's own poorly performing funds. I think they've relied on customer inertia to get away with this. I mean, who would have invested in such a fund if it was presented to them as a destination for new money?
I like what you're saying Gadgetmind. My idea is to place half the pot in a tracker and half in self selected blue chip yield (& potential for growth) shares and see which half does better in time. Obviously with such a small pot dealing charges will be a limiting factor so I'd only be able to invest in 5 or 6 shares.
Any tips?