Fidelity Index trackers

Surreyboy

Fidelity Index trackers appear to be some of the cheapest around at the moment.

However, does any one know whether the Fidelity trackers are synthetic trackers (as opposed to genuinely investing in the constituent shares of the index)?

I was about to start investing in the Fidelity Index World Fund, but then I noticed that the 'Fund Objective' on the III website states: 'The Fund's investment objective is to achieve long term capital growth by closely matching the performance of the MSCI World index. The ACD will aim to hold securities that represent the MSCI World index '... (the objective for other funds talks about actually investing in the shares that make up the index etc).

I've heard that synthetic ETFs carry more risk and may have greater tracking error. I assume the same may be true for funds /oeics?

Thanks

masonic

It seems to be part-synthetic, but with mostly physical replication, according to the top 10 holdings. It looks as though it might only be using the synthetic holdings to keep the fund fully invested, since they aren't very significant.

Synthetic investments do carry more risk, since they are built using derivatives from investment banks, so you have added counterparty risk should the investment bank get into difficulties, but they generally have no tracking error because they aren't tracking an index, they are matching it. They are probably being used here to reduce tracking error caused by cash as it flows in and out of the fund.

Surreyboy

Thanks for the reply. That's very useful.

I think I may invest in the Vanguard FTSE Developed World ex-Uk , which seems a good fund (& doesn't appear to be synthetic).

Surreyboy

Hi,

Just one further question - the Vanguard All World UCITS ETF looks like a good option. But, I just noticed that most or all of the Vanguard ETFs are domiciled abroad,in Ireland. Is this unusual, or something I should be concerned about (ie is there any greater risk with this, as opposed to it being domiciled in the UK)?

Thanks!

masonic

Many ETFs are domiciled outside of the UK for tax purposes (stamp duty), although since April UK ETFs have been exempted from paying stamp duty. I hold some Vanguard ETFs and I've never been concerned about about them being domiciled in Ireland.

Remember that for ETFs you also have to consider trading costs, which could make them more expensive than a fund if you can trade funds for free.

Surreyboy

I'm with III, where the trading costs for funds, shares and ETFs are the same I think (£10).

Thanks for the advice.

Azza_1

You could always go Vanguard Lifestrategy if you don't want to DIY trackers and allocate % yourself.

Surreyboy

Yes, I did look at that, although it has about 28% allocated to the UK, which seems quite high (esp for me, as I've already got a couple of UK funds).

The Vanguard All World High Dividend yield etf also looks reasonable. People often say that one of the biggest drivers of growth is re-investing/compounding dividends.

Surreyboy

I think it's what they call a 'smart beta' fund/ETF :-)

Azza_1

Ah okay didn't realise you had that UK exposure already. Definitely go for a Dev world ex UK if you don't want to do the allocation yourself. Vanguard would be ideal in that regard. Depending on how nitpicky you are about charges etc but Fidelity tracking error on previous 'dirty' funds was worse than Vanguard and Blackrock. You could always go Blackrock to begin with and then one there is more performance in a few years about the Fidelity funds just switch to them if it's decent. The difference in charges is like .xx so it'll be a couple of £ a year so it's not a big deal.

Surreyboy

I couldn't find any Blackrock Global index fund when I looked before? I could find ones from Vanguard, Fidelity, Aviva etc