Stocks and shares isa - Index tracker choices available

fenki123

Hi,

I plan to invest £5k in my first stocks and shares isa in the coming weeks after looking to build my knowledge in investing through sources such as Tim Hale's 'Smarter Investing' and 'Monevator'. I plan to continue doing this until I feel comfortable enough to take the punt.

I have decided to do this through Charles Stanley Direct and am currently planning to build a portfolio to the higher end of the risk scale spread across several asset classes. I intend to do this through index trackers wherever possible.

My question is regarding choice of index trackers. Now unless I am missing something, opting for index trackers and then also only those that are listed as available through an isa on CSD seems to really limit my choice of options. I've looked at a couple of asset classes and it appears there is say 3 available for global emerging markets from blackrock, l&g and vanguard (Acc and inc) and say 1 available for uk equity income from Vanguard. I hope I have performed these searches correctly and that sounds reasonable for the number of funds that should be on offer.

My question is, would it always be better to for me to disregard any funds that aren't available to invest through an isa and just focus on the ones that are? Do the tax savings through an isa make it the case that these would always be the best option? I know that I can only ask this generally speaking as you have no way of predicting whether one fund benefitting from tax savings could be beaten by another fund available to me that does not benefit from this but may gain from better performance against the same or a different index. I also know that other factors such as TER come into play. But are the tax savings significant enough that it would take another non-isa fund to perform significantly better and incur significantly fewer expenses for it to beat an isa fund?

Sorry if there are any obvious points in that but I am a rookie. Thanks in advance.

bigadaj

Have you actually looked for alternative funds that are non isa qualified or is this just an assumption, as normally if it qualifies for inclusion as an isa, which most do, then it's normally available as an isa or unwrapped. I wouldn't expect there to be much additional choice if you go unwrapped.

The choice of passive funds will vary dependent on the area covered, there are loads for the uk, us but fewer for more specialised areas. In particular equity income has always been a managed area so choice will no doubt be limited there.

You may be looking at this the wrong way. One option is to get teh vanguard lifestrategy or blackrock consensus funds at your particular risk level and use these for teh majority of contributions. You would then potentially add side funds to make up your chosen asset allocation like smaller companies, maybe adding in emerging markets, Asia or even looking at property or commodities. Alternatively you could build up from more focused trackers, either using country specific or using something like a world ex uk tracker in combination with a uk tracker and then potentially side funds as noted above but maybe including some bond allocation.

Investing in isas is just easier, normally no additional costs and you don't have to worry about paying additional income tax if you are a higher rate taxpayer or capital gains over the longer term.

Linton

fenki123 wrote: »

My question is regarding choice of index trackers. Now unless I am missing something, opting for index trackers and then also only those that are listed as available through an isa on CSD seems to really limit my choice of options. I've looked at a couple of asset classes and it appears there is say 3 available for global emerging markets from blackrock, l&g and vanguard (Acc and inc) and say 1 available for uk equity income from Vanguard. I hope I have performed these searches correctly and that sounds reasonable for the number of funds that should be on offer.

......

Almost every fund you are likely to meet is eligible for an ISA and is probably available through any of the main onli8ne brokers. Of course in some areas there may be few index trackers available mainly perhaps because the asset class isnt really (arguably) suitable for trackers - equity income is one such. The Vanguard fund is new and has yet to produce data that can be compared with other options. There is no generally accepted index for Equity Income so Vanguard have invented their own which is highly artificial in that it incorporates various safeguards to ensure broad diversification. It certainly doesnt represent any real market, which is one of the main justifications for an index fund.

You mention Emerging markets - here as in many other niche areas there appears not to be a convincing index to track.

I suggest that if you are after index funds you focus on the main indexes such as UK, Europe, US, Far East, Japan. If you are after higher risk niche investments you look for managed funds.

You can get more specialised passive investing from ETFs but suggest you get to grips with the basics first.

fenki123

Thanks both. I think my confusion lay in what was/wasn't available as an isa but that helps clear it up. Valuable advice on other bits also.