Cheapest global tracker through iWeb?

bowlhead99

metrobus wrote: »

Just spent 2 hours reading up on ETFs.

Since most are priced in USDs I presume since I will be buying in £
I have in effect lost 20% in the last 4 months.

Would I be better buying a Sterling listed ETF?

You don't gain or save 20% just because you pick one which publishes its price in pounds. You make gains or losses in pounds based on what the underlying assets do and what happens to the exchange rate.

For example say you want to buy into a basket of shares representing the US stock market. There is a version priced in pounds at £100 a share and a rival one priced in dollars at $150 a share. They both hold $150million of assets and have a million shares in issue. If the exchange rate is $1.5:£1 then it will cost you £100 from your broker account to buy a share of either of them.

When the US index, measured in dollars, goes up by 10%, the assets of both ETFs go up to $165million. The price of the USD-priced ETF goes up by 10% too, to $165, and assuming no change in exchange rates the one that's priced in sterling will also go up by 10%, to £110. If you held the dollar one, you could sell it at $165 and get your money back, which at 1.5:1 would be worth £110. So your fortunes didn't change just because of selecting the GBP or USD-priced fund - the result is identical. Your fortunes changed because of what happened to the actual assets, in sterling terms. In this particular case, what happened in sterling terms is the same as what happened in dollar terms because the rate didn't move.

Then imagine the fx rate falls from 1.5 to 1.2. The one priced in USD is still priced at $165 because it holds $165-worth of assets. If you sell it and convert the $165 back to pounds at 1.2, you'll have £137.50. Meanwhile, the one priced in GBP will not be priced at £110 any more because the fx rate has changed drastically. The $165million of assets held by the sterling-priced fund is worth $165 a share, and with a 1.2:1 exchange rate they'll publish the price at £137.50.

Again in that case, your value changed, but not because of picking GBP-priced vs USD-priced. The two routes are mathematically the same, because selecting one priced in a different currency does not make a difference, it is just a different way of keeping score. All that matters is what happens to the assets in their own currency, and what happens to the exchange rate. That holds true whether those are dollar shares, or euro bonds, or japanese office buildings hedged to the mexican peso.

At least, that's the theory. From a practical perspective, your stockbroker will charge you an fx fee built into his exchange rate if you only have pounds in your account but want to buy into the dollar fund. Getting hit with this charge both ways usually means it is better to pick a fund that lets you buy in to the fund in pounds and doesn't have any currency changes done by your stockbroker. That way, the implicit cost of changing those pounds to dollars inside the fund (so that the fund manager can buy $150m of USD assets with the combination of your £100 and everyone else's £100s) is much lower because the fund manager is doing it with bigger amounts of money sourced from all the stockbrokers of all the investors all over the country. Whereas your broker might charge you 1-2% on your paltry £100 that you want him to convert.

So, to sum up:

Since most are priced in USDs I presume since I will be buying in £
I have in effect lost 20% in the last 4 months.

You have not lost 20% because of them mostly being priced in USD and you buying in £. What they are 'priced in' is irrelevant. But yes if you are looking at buying a fund that holds Microsoft and Facebook and Google shares which all cost more dollars than they did in April, *and* dollars cost more pounds than they did in April, then of course you have missed out on some gains by not buying six months ago.

Would I be better buying a Sterling listed ETF?

Yes if your broker has high fx fees built into his exchange rate, and does not offer a multi-currency cash account to let you easily spend the proceeds of selling one dollar ETF on buying another dollar ETF without converting to sterling and paying two fees.

But buying the sterling ETF does not in any way avoid the 20% loss you are talking about, it just avoids a percent or two in broker charges here and there.

metrobus

Thank you for taking the time to respond.

Before yesterday I did not know what a ETF was.

I have about £35k in FTSE 100 shares and want to sell
and convert to a ETF with low U.K. exposure I am not looking at
high risk and would be happy with a 3% yield with no price increase and
fully accept they can go down and prepared for this.

I have looked at the Vanguard products and want a sterling ETF
what other companies should I look at?

Can I put any amount of cash into to a ETF(getting whole number and fractions of a share) or do I buy at a specific price?

If I choose a Vanguard product is there an advantage in using them as
the broker?

Sorry for all the questions,just trying to get up to date on the way they work.

bowlhead99

You buy at a specific price for whole numbers of shares, not fractional. Brokers would take an order for, e.g. "please buy me £1000 worth of ETF abcxyz", but if the price is £51 per share you'll just end up with 19 shares and some leftover cash, not 19.6 shares.

Different brokers have different dealing fees, or monthly/quarterly /annual admin or inactivity fees on an account that isn't trading, so shop around. But when you want to buy in or sell out, they buy and sell ETFs on the market along with all the other competing brokers. So there isn't an advantage of using Vanguard or Blackrock or HSBC as brokers if you are going to buy one of their products. (Not that they all have UK brokerage arms anyway).

You say you want low UK exposure but are not looking for high risk. Your problem is that ETFs are cheap because they are basically just baskets of shares modeling the exact same portfolio as a known defined index (typically, the index such as S&P500 or FTSE All-Share or FTSE All-World are constructed on a market capitalisation-weighted basis). All of the major equity indexes have volatility that could give a 50% fall over a year or so. It is lower risk than an individual share but most people would still call that high risk.

Meanwhile the main bond indexes don't have the same level of risk (in terms of volatility etc) as equities but neither do they have solid risk free 3% yields. A UK 10-year gilt yields about 1%, while a German one is less, perhaps negative (definitely negative for the inflation-linked ones). Same with other credit-worthy countries: Japanese, Swiss and Swedish cash or government bond interest rates mean you pay them to hold it not the other way round.

So really if you want lower volatility and a diversified portfolio, but still want to return more than inflation, and want to do it via ETFs (which blindly follow a market index) you would build a whole portfolio of them for a blended return which mixes the market returns from equity, bond, property and commodities ETFs in the proportion you want, and periodically rebalance. There is no such thing as a single global index to track that yields 3% and couldn't easily lose 30%. There are some that might use a lower-volatility equities index, following some well-defined internal rules, but such indices feel somewhat "artificial" to me and I've never tried to buy one.

You say they could go down and you're prepared for that, but you also say you are not looking for high risk. I guess it depends what you call high risk. If you don't sell when the ETF is down, and the ETF doesn't go bust through fraud or failure of a market counterparty, I guess there is no risk of you losing money, other than on paper...

metrobus

I was viewing the ETF prices on a small mobile phone and since they went to 4 decimal places I stupidly thought the minimum stakes were in the £10s thousands and not priced like a normal share and I now understand it's just like buying a normal share.

I bought £40k of 8 ftse100 shares 3 years ago on the intention of holding for at least 5 years and they are down 12.5% which is not a problem since it's money I do not need they have been as low as -40% I do get approx 4% dividend on initial investment.I just feel ftse100 is in for a fall and want out of UK stocks that's why the curiosity of ETFs.I will think it over on the weekend if to convert or not.
Thank you.

Chickereeeee

blizeH wrote: »

Thank you all so much for the responses!

Very interesting, I think what bowlhead said about emerging markets in particular is very eye opening, because whilst I do already have some coverage through the Vanguard LifeStrategys the Fidelity fund I'm invested with has none.

The HSBC FTSE All-World Index Fund seems like the best option in this case then? Slightly cheaper then the Vanguard alternatives and seems to have a nice balance of both developed and emerging markets.

Which I do not think is available on iWeb? At least I cannot find it.

VWRL works for me, as it reduces my costs on Youinvest.

C