Entry/Exit charges on ETF's

pgalland

I am currently looking for an ETF that replicate the MSCI world index, in which I will invest 80% of my savings and make contributions every month / year until I retire.

Given that I will invest a substantial amount of money in that 1 fund over the next 20yrs, I want to make sure I am picking the right one.

After a lot of research, I have narrowed my choices down to 2: VWRL and UC55 both being low TER, eligible for ISA and replicating the index. Both carry similar TERs (0.25% for the vanguard and 0.30% for the UBS one)

My preference would be to go for the UBS one as it is an accumulation ETF, while VWRL is an income ETF.

However, the prospectus highlights hefty entry/exit/transfer charges (up to 5%) - given that it also states, "The entry charge and exit charge shown are maximum figures. In some cases you might pay less – you can find this out from your financial adviser" - could you please confirm what those charges effectively are?

Given that most ETFs don't have any such charges, I would like to know if those charges really apply or if it is just a legal way of protecting themselves in case they decided to change the rates later on?

I asked my broker (HL) and they were unable to tell me, they just asked me to call UBS directly.... really !

The vanguard fund (income) is not charging anything else than the TER.

Thanks for your thoughts

bigadaj

Most funds have that 5% as an initial charge but it's discounted, generally to zero, when you buy through a broker or fund supermarket.

The vanguard fund will have a dilution levy but it's probably only around 0.2%.

Very poor from hl, the only thing they've got left is customer service now their costs have been changed and that's not the case from your experience.

pgalland

bigadaj wrote: »

The vanguard fund will have a dilution levy but it's probably only around 0.2%.

.

What do you mean dilution levy? Is it on top of the TER? Would this levy exist for the portion I will be keeping in my S&S ISA?

Thanks

grey_gym_sock

but these are ETFs, not OEICs/UTs. the entry/exit charge doesn't apply to you, because you buy/sell on the market, not with the fund manager.

it only applies to "market participants", who are getting (large numbers of) shares in the ETF created/redeemed with the manager. (and 5% is presumably an upper limit, not what they'd usually pay.)

and a dilution levy is another thing you only pay for OEICs/UTs.

what is more relevant to you is the typical bid-offer spread of the ETF's shares. this can be wider for smaller, or less frequently traded, ETFs.

pgalland

Grey gym - thanks for clarifying. I didn't really think of the spread (which is clearly a 1time thing, but important none the less)
I am really unsure about UC55 now over VWRL. Given that I will contribute every 2/3months (to minimize trading cost %) - I might not really care about buying an accumulation ETF, as I will be reinvesting the dividends at the same time as the contributions...

I might as well go for the cheapest TER+spread fund (0.25% + 0.12% for the Vanguard vs. 0.30% + 0.20% for the UBS)

Any thoughts?

coastline

UC55 is domiciled in Luxembourg according to this link...not sure how that would effect a tax position.

http://www.etfstrategy.co.uk/ubs-global-asset-management-lists-msci-world-etf-on-the-london-stock-exchange-lse-37145/

http://monevator.com/avoid-income-tax-with-reporting-funds/

HSBC..

http://www.etf.hsbc.com/etf/attachments/uk/factsheet_world_retail.pdf


usefull link..

http://monevator.com/low-cost-index-trackers/

grey_gym_sock

if you're going to reinvest any dividends within 2-3 months anyway, i'd say there's not much advantage in accumulation units.

UC55 seems to track the MSCI world index, which only includes developed markets. VWRL tracks the FTSE all-world, which includes developed and emerging markets.

Glen_Clark

I have been amazed how low the dealing spreads are with buying Vanguard ETFs through X-O - especially considering there is no stamp duty.
When I buy shares my portfolio shows a very noticeable loss straightaway reflecting the charges.
But when I buy ETFs it hardly shows any loss at all.
I haven't sold any yet though.

pgalland

All - thanks for your input and thoughts. I will go for the VWRL then. Sounds like the sensible choice!

princeofpounds

if you're going to reinvest any dividends within 2-3 months anyway, i'd say there's not much advantage in accumulation units.

Untrue. If you end up reinvesting 30 times, even a small bid/ask spread drag can mount up to something noticeable.

grey_gym_sock

well, suppose an ETF yields 2%, and it costs 0.2% bid-offer spread to reinvest the dividends (but no extra dealing commission, because new money is being invested at the same time). that gives a drag on performance of 0.2% of 2%, which is 0.004%.

actually, staying in cash for 2-3 months is probably a bigger drag. supposing the ETF returns 6% more than cash, then you'd lose 1-1.5% of 2% due to this, which is 0.02-0.03%.

the total of those 2 effects is a performance drag of 0.024-0.034% ... not a lot, though nearly as much as the 0.05% difference in TERs between the 2 ETFs discussed above.