Investing in Property

AlanP_2

Looking forward to seeing how this one pans out as I have been looking at property funds and this one is on my short-list.

Not sure if this helps or just clouds the water but through a Standard Life pension you can access the X-Class at a charge of 1.03% without any bid / offer spread

http://factsheets.financialexpress.net/SLEFL/0VL5_BBEC.pdf


Cavendish online has the D Class at a Buy / Bid Price of £1.50.

http://www.cavendishonline.co.uk/investments/fund-research/

bowlhead99

There is an old thread from 3+ years ago here talking about the same fund:

https://forums.moneysavingexpert.com/discussion/4256519

This relates to the retail A class which is priced similarly to the H class we're talking about (has different ongoing management fee but same initial charge). The bid offer spread was a little over 5%. However this was made up of 5% initial charge which gets discounted away to nothing, and about 0.2% which Bestinvest mentioned on their website as 'additional bid-offer spread', i.e. the non-discounted element that you would actually have to suffer if making the investment through them..

Today for example the expensive retail (high management fee) A class ACC per trustnet is showing 151.6-159.6 which is an 8p spread around a 155.6 mid price. That represents a 5.277% spread above Bid.

Similarly the H class ACC per trustnet 109.5 - 115.2 which is a 5.7 spread around a 112.35 midprice. That represents a 5.21% spread above Bid

And if you look the D class ACC, it's showing 152.4-152.7 which is a a 0.3 spread around a 152.55 midprice. That represents a 0.197% spread above Bid.

Obviously, the classes have different effective spreads based on popularity, class size and number of subscribers and redeemers at a point in time and the spreads will vary.

But it is not just coincidence that the A and H classes have 5.2% of spread and the D class has 0.2% of spread, when the A and H classes have a 5% initial charge. It is precisely because the initial charge is included in the official price. And as mentioned on the other thread, providers like Bestinvest or HL don't make you pay the 5% initial charge, your only effective initial cost is the 'additional bid-offer spread' of about 0.2%.

I feel like I am going to win the bet, and have dropped an email to HL on their contact-us form to see if they can explain whether or not the 5% that they discount is excluded or included from the quoted price which is published everywhere. Will let you know what they say, if they reply to me as a non-customer with a hyper specific question!

bowlhead99

OK so now the reply from HL has just arrived in a few short business hours. I have reproduced in full, and only redacted the contact info, as the response is reasonably well-explained and I'm sure they would not mind it being posted as an example of decent customer service .

You might consider this constitutes a 'win' of the argument and the bet - but if evidence is needed you could verify by sending a similar email (or I could PM you the email headers...)

The good news is that if I am right, then your problem about no longer being able to invest into your favourite fund has gone away, because the 5% barrier to entry does not, in practice, exist. As such, a win-win and well worth your £100 contribution to charity

---
Dear Mr xxxxxxxx

Thank you for your email.
The BlackRock Global Property Secs. Eq. Tracker Class H fund is a Unit Trust, and as such is dual priced - they have an offer (or buying) price, and a bid (or selling) price. The bid-offer spread is made up of the initial charge and other costs incurred by the fund such as stockbroking commissions and stamp duty. As Hargreaves Lansdown has negotiated with Blackrock to fully discount the initial charge you would purchase the fund at its creation price, which is the cost of creating the new unit. The price for the fund on 25 January was 109.50p – 115.20p. If we were simply talking, we would minus the saving we can offer on the fund manager’s initial charge (5%) from the offer price, to give a creation price of 115.20/1.05 = 109.71p. Had you bought the fund on the 25 January, the unit price you would have received would have been 109.71p.

Therefore, even if we offer a full saving on the initial charge, this will only reduce the price paid to the creation price and won’t entirely eliminate the bid-offer spread. Please note, the calculations may vary slightly but this is just due to rounding and because we carry out bulk trading. We are generally unable to inform clients when funds price in this way because funds are dealt on a forward pricing basis and we will not know in advance. The fund manager ultimately reserves the right to price the fund on whatever basis he chooses and we cannot know this in advance.

In addition, I have also attached our ‘Guide to Fund Prices, Savings & Yields’. This will hopefully offer you further information on how the fund management group can value their fund, dependant on the inflow/outflows of cash.

I hope this has been of assistance to you. If you have any further queries, please view our Help and Support [link removed] centre or contact us on xxxxxx.

Kind regards

xxxxxxxxxx
Investment Helpdesk Consultant
Hargreaves Lansdown
---
Extract from the Guide they attached (copyright H-L, available on their site)



Goes on into more detail on impact of pricing on bid basis vs offer basis depending on net inflows/outflows but the point is the same.

VT82

Sounds like it's a lot easier to invest smaller amounts in commercial property-linked funds than in residential property and buy to let.

Are there any decent HPI-linked structured products out there at the moment? The OP wouldn't be able to drip-feed into it, but if they can get the commission rebated, there may be something that suited their aims as an alternative to the Property Moose suggestion?

InvestInPoker

bowlhead99 wrote: »

OK so now the reply from HL has just arrived in a few short business hours.......

You might consider this constitutes a 'win' of the argument and the bet - but if evidence is needed you could verify by sending a similar email (or I could PM you the email headers...)

---
Dear Mr xxxxxxxx

Thank you for your email.
.................
The price for the fund on 25 January was 109.50p – 115.20p. If we were simply talking, we would minus the saving we can offer on the fund manager’s initial charge (5%) from the offer price, to give a creation price of 115.20/1.05 = 109.71p. Had you bought the fund on the 25 January, the unit price you would have received would have been 109.71p.

Therefore, even if we offer a full saving on the initial charge, this will only reduce the price paid to the creation price and won’t entirely eliminate the bid-offer spread. Please note, the calculations may vary slightly but this is just due to rounding and because we carry out bulk trading.

Ok bowlhead you say this

You might consider this constitutes a 'win' of the argument and the bet

I do not consider that a "win" for the following reason. We agreed on the following.

Just to make it clear this is the defining post

InvestInPoker wrote: »

I think you are wrong and would be willing to make a charity bet to that effect. So you are suggesting if you bought £1000 worth of the H class on Hargreaves Lansdown you would have a holding worth £1000 to start of with? I think you would have the value of your holding listed as approx £950 to start off with.

bowlhead99 wrote: »

Sure, works for me! Good luck!

Even if I accept the pasted email from customer service as both valid and accurate We would both be wrong as per that post. As I highlighted in the mail from HL you would still suffer from a spread and therefore have less than £1000 of your initial holding. Of course you would have more than £950 and it would not be as bad a spread but nevertheless you would still suffer from it.

If the email is accurate then of course although it is not a "win" as stipulated you are more correct than myself. I would probably concede to 50% of the bet value as it is half a win. I will send an email myself to HL within 48hours to see if I get the same reply from them for starters.

bowlhead99

Sure, of course, you should check out the facts for yourself. But, presuming customer service confirm to you what they confirmed to me... to your notion that "we would both be wrong as per that post", I would say "Hahahahaha. That's a joke, right?"

You came on here in post 8 and said

I bought in via a share class which had a 0.5% bid spread, not great but looked a perfect fund for what I wanted so I took it and have been happy with it so far.

Sadly now it appears I cannot add any more money into the class with the small bid spread nor can I start a new investment in it. I can only find a new class, which has a horrendous 5% bid spread on it. This sucks.

I said in post 9 in relation to the horrendous extra spread compared to the old one: "isn't that spread between the official bid and offer prices just reflective of the manager's 5% initial charge which would be discounted away to zero by most investment platforms?"

You said post 11

"When I first bought into this fund my initial holding was worth very slightly less than what I paid, 0.2% or whatever the actual spread is. Not ideal but seemed a low charge to access a great fund....
...Today it says Buy price 1.134 Sell Price 1.078 (ouch!)

Initial charges are listed as nothing, but of course you will get ripped for 5% right off the bat - which is greedy on their part and to be avoided.

It appears to be exactly the same fund as the D class, same holdings etc. The difference is in the bid spread. I don't believe this fund was soft closed as it got too big or for any other reason. I believe they just slapped that spread on it out of greed.

The 'greed' spread to which you refer (Buy price 1.134 Sell Price 1.078 (ouch!)) shown there is 5.2%. Instead of 0.2% . You think it costs an extra 5% to invest in this new class.

Whereas I think it does not cost an extra 5% to invest in this new class, it costs the exact same ~0.2% that the old one cost, because the new 5% element which you despise will be discounted away to zero.

You said post 15 "What I am saying is you will suffer the bid spread on this regardless of anything else. It is not part of any initial fee discount or non discount.".

Well, clearly it is a unit trust so there will be some spread because that's how unit trusts are priced. But actually the difference between the 0.2% of the old class and the 5.2% of the new class, which "sucks" and is "greedy" and you believe makes it more expensive than the old class.... is "part of any initial fee discount or non discount." and so the new class does not cost you a bean more than the old class cost. The 5% within the 5.2% disappears to leave 0.2% which is exactly what it cost before they apparently 'got greedy'. So they did not 'get greedy' after all and your fears are unfounded.

This difference of opinion led to:

InvestInPoker wrote: »

bowlhead99 wrote: »

you're mistaken, if you find a platform that discounts the fee you effectively discount the spread.

I think you are wrong and would be willing to make a charity bet to that effect.

So what is the spirit of what we are betting on, based on all the prior discussion that led to that quote?:

Me: "If platform discounts the fee, you effectively discount the spread" ;
You: "I think you are wrong and would be willing to make a charity bet to that effect"

So, regardless of the final terminology used for the wording of the bet, we had clearly been talking about

A) your complaint that the spread had gone up from 0.2% to 5.2%, as if it was a swingeing new 5% charge slapped on top which is very greedy, versus

my observation that if you discount the fee you discount the spread so the 5% discount on fees gives you a direct 5% discount on spread... which takes you right back to 0.2% spread meaning there is nothing to be concerned about because nobody is being greedy, no 5% charge has been slapped on top, and the effective cost is unchanged.

The customer service rep came back to confirm that indeed, if you do discount the fee you do discount the spread, because the apparently wide 5.2% is only as wide as 5.2% because it contains 5% of discountable initial charge which will be discounted to zero, and after discount, the spread is only 0.2% like it always has been.

Her real world example showed that the effective situation, despite the published spread of 5.2%, was ... buy for 109.71p vs sell for 109.50p... equals 0.2%. Just like it has always been. There is no 5% "greed" charge, it was all a red herring because when you discount the fee you discount the spread and your fund has not got any more expensive.

Because of this, your original complaint from post 8:

I can only find a new class, which has a horrendous 5% bid spread on it. This sucks.

and your followup complaint from post 11:

...but of course you will get ripped for 5% right off the bat - which is greedy on their part and to be avoided...

... I believe they just slapped that spread on it out of greed.

... Hurts I cannot top it up now though, nor can I bed and isa it.

... are unfounded, because the extra 5% that you don't like does not, in practice, exist.

Basically there is no new charge because, as I said...if you find a platform that discounts the fee you effectively discount the spread.

Your contention, per your later support for your position in post 20, was "They are seperate things and you will suffer this bid spread killer if you purchase the H class through Hargreaves Lansdown."

But as customer service confirm, you will not suffer this bid spread killer if you purchase the H class, because the 'killer' is discounted away to nothing, leaving the exact same 0.2% that you were happy to pay for the D class which you talked about in post 11.

The guide from customer service which I screenshotted, explaining that the apparent wide spread includes initial charges which can be be discounted away to leave a pure 0.2% spread for class H, which leaves you in a position no different from a class D that didn't have initial charges at all, is available at

http://www.hl.co.uk/__data/assets/pdf_file/0016/32542/The_HL_Guide_to_Fund_Prices,_Savings_and_Yields.pdf


To summarise, when we made the bet, we were debating about whether or not this extra 5% on top of the 0.2% was sheer greed or a non event. 5.2% on £1000 invested was £52. Whereas 0.2% on £1000 was £2. You were already paying the £2 in the old class and happy with it. So your £1000 investments were turning into £998. And you didn't want the new class because you thought the £1000 investment would now turn into £948, an unacceptable cost to you. But I thought the new class would still leave you with £998 and no incremental cost at all, a non event.

So you are suggesting if you bought £1000 worth of the H class on Hargreaves Lansdown you would have a holding worth £1000 to start of with? I think you would have the value of your holding listed as approx £950 to start off with.

Yes, what I was suggesting is that there is no £50 cost and the £1000 will stay at £1000. Of course the £2 is still the £2. So in this new class, your investment of £1000 gives you £998 (approx £1000 to start off with), just like the old class, and it doesn't give you the £948 you fear (approx £950 to start off with).

The bet is whether there is a £50 extra charge on the new class costing you £52 versus the £2 of the old class. And there isn't. It just costs you the £2 as always. Based on the customer service figures you buy in at 109.71p and get 911.5 units for your £100 which you could then sell for 109.50p or £998 total. The extra £50 that you fear, never happens and you don't need to be scared of the new share class.

So,

We would both be wrong as per that post.

I would probably concede to 50% of the bet value as it is half a win.

seems somewhat disingenuous. My contention is that the incremental £50 charge on the new class which you find unacceptable was merely a fake 'initial charge' which would be discounted to nil by all credible DIY platforms and the cost would be unchanged from your new class. Of course, there's still £2 net charge as a spread as there always was with the old class. But looking at £950 vs £1000, a £2 is just lost in the roundings and I had presumed was not up for debate.

I know you are a gambling man and so probably should have ensured the wording was watertight and when you said £1000 gives 'about £950' not £1000, I should have not allowed that lazy language and insisted that the bet be £1000 gives 'about 948' not 'about 998'.

However, as your whole complaint was about a new £50 charge from the new class giving an unacceptable cost of ownership, I presumed the £2 was neither here nor there. As customer services will confirm to you, and as the linked charges leaflet confirms to you: there is no new £50 charge.

Of course, you should validate the customer service email for yourself, and assuming I did not make it up, consider whether or not you feel you have won or lost.

If the bid spread leaves the same £998 investment value as it always did, it's absolutely your right to not pay out the bet value based on the bet wording saying that £1000 of investment value would somehow be left.

But surely you know deep down that the spirit of the bet is me saying if you discount the fee by 5% you'll discount the spread by 5% , and then you saying in post 16 that you won't because the fee is unconnected to the spread, and an investment of £1000 would leave "approx £950".

Based on the customer service comments:
- the fee is entirely within the spread;
- the discount of 5% given on the fee discounts the spread by 5%; and
- an investment of £1000 would leave £998 which is "approx £1000" rather than "approx £950"

All of those 3 things are consistent with what I have been saying all along, and mean that you have nothing to fear from the new share class. Compared to the old one, it doesn't "suck", isn't "greedy and to be avoided" and shouldn't "hurt now I can't top it up or bed & ISA it". The effective acquisition cost of the new share class is the same in terms of spread as the old one. You were mistaken.

Whether that means the charity should get £100, or £50, or £0, is up to you.

InvestInPoker

bowlhead99 wrote: »

Based on the customer service comments:
- the fee is entirely within the spread;
- the discount of 5% given on the fee discounts the spread by 5%; and
- an investment of £1000 would leave £998 which is "approx £1000" rather than "approx £950"

Bowlhead you are misquoting me here either deliberately or accidentally - I did not say "approx £1000". Here is what was said

InvestInPoker wrote: »

I think you are wrong and would be willing to make a charity bet to that effect. So you are suggesting if you bought £1000 worth of the H class on Hargreaves Lansdown you would have a holding worth £1000 to start of with? I think you would have the value of your holding listed as approx £950 to start off with.

There is a significant difference between what I said, which you specifically agreed to as the terms, and you inserting "approx" in front of my £1000 in them.

The terms of the bet were quite clear and you will suffer from a marginal amount of bid spread (as it is not all discounted) which will not leave you with £1000 if the customer service email is correct. That is not a "joke" it is a fact.

Now please, I do not wish for any personal attacks. I was not attempting to be clever in setting the terms but when they say the bid spread is 0 because of the rebate then it must be 0 for the win. They do not discount all the spread away. I have no wish to stiff a charity and have offered a half settlement due to you clearly being more right outside the terms than me (if the customer service email is correct). Remember you did also say

which would be discounted away to zero

in another post, which is not true at all.

I will post my email from HL here when I get it - if you wish to argue with me about the terms can we do it by PM please instead of a public match. Any donation that ends up getting made will have proof of posted in here though. Cheers.

bowlhead99

InvestInPoker wrote: »

Remember you did also say

which would be discounted away to zero

in another post, which is not true at all.

Well, the bit you're selectively quoting from was party of a longer sentence. " isn't that spread between the official bid and offer prices just reflective of the manager's 5% initial charge which would be discounted away to zero by most investment platforms?" ; which was said in the context of you saying the fund was now going to cost 5% spread. 5% of the spread was indeed reflective of the initial charge, and discounted away to zero.

However, it turned out that the spread you had been quoting was just in round numbers and it transpired that the real spread was 5.2%. As the 5.2 spread reflected the 5.0% charge like I'd explained, it stands to reason that the discounting away to zero of the 5.0% charge would leave the residual small spread that all the classes without an initial charge have - so your "new" class that you hate the idea of was not going to cost any more than the "old" class which you liked.

This was what I explained to you in post 14:

looked it up on Trustnet.

There is a D class and an L class with small spread and no initial fee.
There is an H class and an A class with large spread and a 5% initial fee, where the large spread approximates to the small spread plus 5%.

So, I still think you're mistaken, if you find a platform that discounts the fee you effectively discount the spread

I fully understood the fee and spread structure as explained there... and you presumably don't really think I'm naïve enough to assume that a platform manager or stockbroker is going to discount an actual underlying spread just for the fun of it - there's no way £1000 can remain at £1000. I wouldn't have made a "money where your mouth is" bet on that basis as it's not something that would be at all reasonable for the platform to do.

Of course, i can see the "£1000 instead of approx £950" in black and white, so can't dispute that's literally the bet... my error was assuming you had rounded off. In the same way you had rounded off when first talking about the "greedy 5% spread" but really meaning "a greedy 5.2% spread that's 5% higher than my normal 0.2% spread".

Because a 0.2% one time fee is pretty meaningless for investing long term in property - and as it applies to all classes, i assumed irrelevant for the bet or for whether you would stay using the product which you like the other class of... while a 5% premium on top, is clearly not, and would have been the real " killer " that you were describing and complaining about.

Anyway having written all that out on my phone, I now re read your last post properly where you suggest having it out by PM rather than by thread. It has probably bored everyone else to tears and not helped the OP.

Let's catch up over PM when you hear back from HL at some point.
Cheers

redux

It sounds like perhaps the bet could be discounted as well.

0.2 / 5.2 x £100, approximately, maybe? Somewhere between £3.50 and £4?

coyrls

I've been following this thread and to me it is very clear that Bowlhead has won the bet.