ETFs, trackers & dividends

jamesd

armour wrote: »

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

On the HL page I linked to earlier, also see the cheaper SWIP one. Though note the £2 a month cost at HL, it might be cheaper to use one with a higher AMC and no monthly charge there, depends on the amount you put into the fund.

gadgetmind

armour wrote: »

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?

Yes, don't bother. Sorry!

It might sound harsh, but 5 shares isn't enough, and even 15 to 20 holdings is a "conviction" portfolio.

If you'd invested in half a dozen UK blue chip shares in 2006 rather than that fund, you could be looking at close to a total loss. Of course, you could have done OK, or even very well. Such concentrated holdings are going to be *very* risky and are well worth avoiding.

If you're considering trackers, take a look at Vanguard Lifestrategy. It's an "all in one" global tracker and it comes in different varieties with different bond/equity mixes.

I also use a fund that does active management on top of Blackrock trackers, and it's performed pretty well over most timescales. This one is only available on Friends Life, but many pension platforms have similar.

bigsy

jamesd wrote: »

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.

The AMC on the Vanguard FTSE UK Equity Index fund is 0.15%, not 0.25%.

Linton

armour wrote: »

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?
...

In August 2006 the FTSE100 was roughly what it is now so the return on a tracker on average would have been the dividend rate minus charges per year - about what you could have got from a reasonable savings account. OK, better than nothing but hardly recompense for the rather worrying nearly 50% drop and recovery in value in the meantime.

If you are seeking return and have got say 10+ years before you need the money, in my view the FTSE-100, whether managed fund or tracker is not going to deliver the goods.

jamesd

bigsy wrote: »

The AMC on the Vanguard FTSE UK Equity Index fund is 0.15%, not 0.25%.

Thanks, I'd read across but got the line above. I've corrected my earlier post.

afwone

armour wrote: »

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?

While I see the merit of trackers and use them for foreign markets, on ground of cost I think that there is a lot to be said for simply holding shares in the biggest companies – those that account for the largest portion of the FTSE 100.

Where there is more than one company in the same sector just one of them could be picked to help with diversification. So for five shares:

(1) BHP Billiton or Rio Tinto Group
(2) Royal Dutch Shell B or BP
(3) HSBC
(4) Vodafone
(5) GlaxoSmithKline

The next one on the list would be Unilever. Personally I would give BAT, the next in line a miss on ethical grounds, but this method of selecting shares should to my mind correlate reasonably well with a tracker. The ethical twist could of course go either way.

Well anyway this is the direction I am moving.

TCA

jamesd wrote: »

If you buy an income form the income is paid to you, perhaps into a cash account associated with the investment one or as a cash balance. If you buy an accumulation form it increases the value of the investment. It's not normally retained by the operator of the investment.

Generally speaking do most trackers and ETFs have both income and accumulation versions?

If choosing accumulation, are there difficulties in identifying dividend income (specifically for higher rate tax payers who need to declare it) and does the reinvestment of income count as a normal purchase and attract the usual charges?

gadgetmind

TCA wrote: »

Generally speaking do most trackers and ETFs have both income and accumulation versions?

Trackers usually have accumulation variants but ETFs rarely do.

If choosing accumulation, are there difficulties in identifying dividend income (specifically for higher rate tax payers who need to declare it) and does the reinvestment of income count as a normal purchase and attract the usual charges?

Accumulation funds are a right pain to hold unwrapped. You need to keep track of both dividends and the purchase price of units so you can get your capital gains tax calculations right.

TCA

gadgetmind wrote: »

Accumulation funds are a right pain to hold unwrapped. You need to keep track of both dividends and the purchase price of units so you can get your capital gains tax calculations right.

Thanks gadget. I keep forgetting the capital gains element. I guess you need to monitor that whether an income or an accumulation fund. Vanguard's Global Equity and Emerging Markets ETFs would be unwrapped for me and are still in my thoughts for when the time comes....Along with a handful of investment trusts.

gadgetmind

Yes, you need to track purchase price and dealing costs for everything, but it's harder when units keep being bought at different prices. Just treat them as a "section 104 holding".