Best way to hold short term UK tracker

scarletjim

I want to buy some kind of FTSE100 tracker now, say about £6k worth, and then sell when it returns to 6800 (which I believe will happen in next few months - but I don't want to debate that here) - what is the best (cheapest?) way to do this?

• I've invested £9k this year in a Cash NISA, so I could presumably buy a tracker in a Shares NISA.
• I could do it outside the NISA, as presumably that would make no difference tax-wise, as I have no other capital gains, and this would only be a few hundred quid. (Have I got that right?)
• I've heard of Exchange Traded Funds - is there any major advantage of these when talking about such a relatively small investment?
• Either for ETFs or traditional tracker funds, does anyone know the cheapest route? I'm new to this and it's quite fiddly to understand total charges wherever you go...

By the way, I do have significant investment in long term shares via my company pension, so I don't feel I'm limiting myself by doing this - it's intended to be a short term punt, and I want to price it as such in terms of charges.

Any advice gratefully received.

ColdIron

I may have missed something here, but why would you buy into the FTSE at 6310 and sell it at 5800 (which we won't discuss)?

scarletjim

Haha sorry that's typo, I meant 6800 obviously, talk about causing unnecessary confusion... thanks for spotting.

masonic

I think it will probably work out a bit cheaper to use a fund, which you may be able to buy and sell without trading charges on you existing platform.

The advantage of using an ETF is that you can get live pricing and trade it real time during market hours, and also set limit orders to sell when it reaches a specific price (or a stop loss), but the downside is that you'll be paying a minimum of a fiver to buy and sell through a discount broker and there will be 0.5% stamp duty to pay when you buy. You'll find funds and ETFs with charges around 0.1%, but you might some extra platform fee to factor into holding a fund (probably not much if you are just holding for a few months), where ETFs can be held without any ongoing fee at a discount broker.

It won't really make any difference whether you hold it within an ISA or not, but may want to do so if you do this sort of thing more often, since you'd need to keep records for tax purposes if you held outside the ISA.

ColdIron

HL do some cheap fund trackers but will charge you £30 to close your account so maybe somebody like Charles Stanley Direct might suit. No buying fees for funds or closure and 0.25% pa to hold which won't bother you much. ISA or unwrapped

bowlhead99

Assuming you mean sell at 6800, or you mean 5800 but you're buying a short ETF. Open an account with a broker. Put money in the account. Buy the ETF. Sell the ETF. Take the money.

You are right that the ISA doesn't give a lot of value on a short term trade that's only expected to give £500 or so of profit, because there's no CGT bill anyway. It might be useful if it takes you a while to get to 6800 and you get some dividends along the way, and you're a high rate taxpayer, as the income would be tax free.

So really you are just looking for a broker that allows you buy ETFs and doesn't cost a lot to buy and sell them or to maintain the account in the background or to close the account when you're done with it. Maybe someone like x-o.co.uk would fit the bill.

You could get the ISA version of the broker's account if you like, presuming it doesn't cost you an extra fee that's more than your projected tax savings. Obviously if you're going to take the cash back out of your investment and back to your bank account as soon as you hit your target, doing it via the ISA will have burnt through the rest of your 2014/5 subscription allowance. If you expect to be able to afford to make longer term use of that £6k remaining allowance with money you have on hand next April, it would be a shame to have used it up to save a few pounds of dividend tax. Of course if you can't afford to max out your ISA allowance next year anyway, that isn't a problem.


The cheapest/lowest cost way of doing it, fund vs ETF depends which provider you choose. Presumably you want to be able to trade in real time to hit your specific targets and so IMHO it makes sense to use ETFs with the expenses for the overall "round trip" under £20 with a cheap broker, rather than some percentage charge and slower trading a with a fund on a fund platform.

EdSwippet

masonic wrote: »

... there will be 0.5% stamp duty to pay when you buy.

No stamp duty is payable on ETFs.

kidmugsy

scarletjim wrote: »

I want to buy some kind of FTSE100 tracker now, say about £6k worth, and then sell when it returns to 6800 (which I believe will happen in next few months - but I don't want to debate that here) - what is the best (cheapest?) way to do this?

Why not gear up by buying a 2 x ETF or 3 x ETF? What a thrill!

scarletjim

Right, quite a lot to take in here, so thanks for all the input.

From what I can see, somewhere like Charles Stanley Direct could provide a FTSE 100 Tracker for a total annual charge of about 0.41% to 0.43% (Blackrock, HSBC, L&G). Presumably I can manage this entirely online?

Those charges are made up of 0.16-0.18% AMC, plus the 0.25% CSD charge. ETFs have no AMC, so the charge then would just be 0.25% yes? So if I invested in something like:
VANGUARD INVESTMENT SERIES FTSE 100 ETF INC UCITS ETF
...would I basically be getting a more flexible, more liquid product, and be paying only 0.25% instead of 0.41%? Or have I misunderstood that somehow?

ETFs scare me just a little, simply because many online guides say steer clear of them until you have some investor experience and know what you are doing. But if I did go that way, with 'X-O', where can I see their available funds? Perhaps I'm being thick, but whatever I click I can't actually see their fund list.

I also looked at AXA Self Investor, as I'm an employee and so get a discount which makes it same cost as CSD, but I can't see on the website whether or not I can manage it all online (preferable to me). To be honest I have to say all the websites I've looked at have oodles of info about open accounts and selecting funds etc, but very little about selling...

masonic

scarletjim wrote: »

From what I can see, somewhere like Charles Stanley Direct could provide a FTSE 100 Tracker for a total annual charge of about 0.41% to 0.43% (Blackrock, HSBC, L&G). Presumably I can manage this entirely online?

Those charges are made up of 0.16-0.18% AMC, plus the 0.25% CSD charge.

Or you could go for a FTSE All share tracker, e.g. Fidelity Index UK is only 0.09% and is composed of over 80% FTSE 100. You'll also pay less than 0.25% if you are only holding for a few months - that cost is for a full year.

ETFs have no AMC, so the charge then would just be 0.25% yes? So if I invested in something like:
VANGUARD INVESTMENT SERIES FTSE 100 ETF INC UCITS ETF
...would I basically be getting a more flexible, more liquid product, and be paying only 0.25% instead of 0.41%? Or have I misunderstood that somehow?

No, ETFs also have charges - for example, the Vanguard fund you've picked out has a charge of 0.09%. It is probably your best option. If you go to somewhere like X-O then you'll only pay that 0.09% plus trading costs (£5.95 x 2).

But if I did go that way, with 'X-O', where can I see their available funds? Perhaps I'm being thick, but whatever I click I can't actually see their fund list.

They don't do funds, but you can trade anything listed on the UK stockmarket, so they don't have a list as such.

ColdIron

I think for your level of investment and short time scales I wouldn't get too hung up on charges as the differences shouldn't amount to much. If it were me I'd go for the site that I felt most comfortable with. Maybe the bigger problem will be how long it takes to get back to 6800, but we won't talk about that