UT or ETF to track FTSE 250

Big_mike

Currently have a UT with HL made up of HSBC FTSE 250 Index Class S units. Only charge I can see is an on going charge of 0.07%.


Whilst reading around I've come across ETF's and I have developed the impression that they should be cheaper than a UT. Cheapest on HL seems to be the Vanguard FTSE 250 UCITS ETF which has an on going charge of 0.1%, it also has an upfront dealing charge (in my case £11.95) and a spread of 0.31% which doesn't seem to be cheaper, am I missing / misunderstanding something?


Many thanks,


Mike

redbuzzard

I don't think you are missing anything with regard to the fund charges, but you also have the expense of a platform charge for funds held with HL which could be as high as 0.45% p.a.

If you are looking across providers as well as funds, then you should also take that into account. Which is best for you will depend on the amounts invested, what you hold, and how often you deal - there is an assortment of charging methods with fixed and/or percentage charges, joining fees, dealing fees.

With HL, ETFs can be cheaper than funds because the charges for holding equities are IIRC capped at £45 per account product.

grey_gym_sock

if this is in an ISA, then HL's platform charges start at 0.45% for both funds and ETFs. however, you keep paying 0.45% on the first £250,000-worth of funds; whereas for shares (which includes ETFs) the 0.45% charge is capped at £45, which you reach when you get to £10,000-worth of shares/ETFs.

so for up to £10,000 invested, the platform charges are the same either way, and you are better off using funds, because there are no dealing charges for funds with HL.

but on larger holdings, holding ETFs can be a lot cheaper. e.g. on £100,000 in funds, you pay HL £450 a year. but on £100,000 in ETFs, you only pay £45 a year - plus dealing charges at £11.95 a time, but it'll still be cheaper unless you deal a lot.

or, for a SIPP, the platform charge for funds is the same, but for shares/ETFs it has a higher cap at £200.

or, for a fund & share account, the platform charge for funds is the same, and there is no platform charge for shares/ETFs.

i wouldn't worry too much about the 0.31% spread on the ETF. because the HSBC fund may well, despite having no initial charge, have implicit initial costs, which are applied by HSBC nudging the price up on days when more units are bought than sold, and down on days when more are sold than bought. this is not a big deal, really, but it may mean that the fund has similar initial costs to the ETF (except for the £11.95 dealing commission).

brasso

It's not quite what you're asking but I've found IUKD from iShares to have been pretty good. It's an ETF that tracks the top 50 dividend payers from the FTSE 350 (rebalanced annually based on predicted divis).

TER is 0.4%.

Can't recall precisely when I bought the fund -- 2 or 3 years ago -- but capital growth is 32% so far and every quarter I get a very nice dividend payment. I've not worked it out recently but it seems roughly about 4% pa.

bowlhead99

Big_mike wrote: »

Currently have a UT with HL made up of HSBC FTSE 250 Index Class S units. Only charge I can see is an on going charge of 0.07%.


Whilst reading around I've come across ETF's and I have developed the impression that they should be cheaper than a UT. Cheapest on HL seems to be the Vanguard FTSE 250 UCITS ETF which has an on going charge of 0.1%, it also has an upfront dealing charge (in my case £11.95) and a spread of 0.31% which doesn't seem to be cheaper, am I missing / misunderstanding something?

I agree with the posters above.

If you use HL to hold your fund you are paying combined charges of over 0.5% a YEAR to invest in the FTSE 250 through HSBC. If you instead use the ETF, which can be bought through any broker and doesn't require an investment 'platform', your ongoing costs are just 0.1%.

That can make quite a difference over a decade or so. The spread of 0.31% is pretty inconsequential ; that is a one off 'cost' on each pound invested and over a decade you would hope the fund would more than double in value - 0.31% gets lost in the roundings (and is probably not really entirely avoided via a unit trust as grey gym sock said).

The £11.95 (and same to sell at the end) should be considered as a cost over the whole life of the fund. Whether it's economical depends on whether you were putting £100 or £10000 in, for that one-off charge. As others mentioned, some would charge rather less than HL for that brokerage service of buying the ETF on the market.

If you are plugging more money into it each month, then paying £11.95 a pop is not going to be very efficient at all. Unless your broker/platform offers it via a monthly regular investing plan at a reduced level of fee (some firms allow a selection of ETFs and ITs to be bought regularly on fixed dates for £1.50 or so).

So bottom line, the ETFs can be quite a bit cheaper if you are just buying and holding, it depends what if anything your broker charges you for holding and what they charge you for buying and selling.

Big_mike

bowlhead99 wrote: »

Unless your broker/platform offers it via a monthly regular investing plan at a reduced level of fee (some firms allow a selection of ETFs and ITs to be bought regularly on fixed dates for £1.50 or so).

Thank you for that info. Do you have any suggestions as to which brokers offer this service?


I had logged on planning to ask how to track some of the MSCI indices in a UT as I would like to pay in monthly (I am expecting a bumpy ride along the way) but judging from the comments above I should be looking to minimise the costs by using ETFs held somewhere other than HL.


TIA


Mike

grey_gym_sock

with either Youinvest or TD Direct, you can have an S&S ISA, and make monthly purchases of ETFs for £1.50 per month per ETF bought, with no further charges for just keeping the account open.

however, depending on how fast you're going to add money to this, it might be cheaper to have an S&S ISA with either Charles Stanley Direct or Cavendish Online, and put the money into funds, for which they will charge nothing for purchases, but 0.25% of the current value of the ISA per year.

so, for instance, with the ETF approach, if you buy only 1 ETF per month (though you could change which 1 from month to month), you'd pay £18 per year for the platform. which is the same as you'd pay for the funds ISA when it has a value of £7,200. so funds are cheaper when the ISA is worth less than that; and ETFs can be cheaper above that level.

(specifically for the HSBC FTSE 250 index fund, Charles Stanley only seem to have class C, with on-going charges of 0.17%, making total on-going charges with them 0.17% + 0.25% = 0.42%; since HL have the cheaper class S, total charges with them are 0.07% + 0.45% = 0.52% ... however, for other funds, there is no difference in the classes available on different platforms.)