Vanguard direct to customer offering confirmed

jamesd

hennerz wrote: »

Here is some further reading on the skill vs luck question mentioned as needing 22 years to tell in Pincher's interview: http://www.etf.com/sections/index-investor-corner/swedroe-research-highlights-active-management-shortcomings?nopaging=1

Please stop citing misleading junk like that. Not one of the four studies actually looked at the actual fund manager performance. Instead by "fund manager" they meant fund or fund management house, completely ignoring the critically important changes in the human managers. That may not matter for passives but it does for actives.

If you want to go and look for it you can find some posts here where I looked at the performance of the UK Global Growth sector funds and found that the top ten stayed in or just below the top ten for years afterwards unless the human manager changed. A human manager change produced a large drop.

jamesd

MarcoM wrote: »

How much would one save with a 100k ISA if this was kept with Vanguard rather than HL?

Nothing, you'd pay £105 more a year in ongoing charges at Vanguard.

HL charges 0.45% for funds but for ETFs it is 0.45% capped at £45 a year. That's 0.045%. Vanguard charges 0.15% capped at £375 so the cap there doesn't help you.

You do need to allow for dealing costs and also the availability of the cheaper non-Vanguard funds.

Linton

jamesd wrote: »

Probably a mistake to look for the dividend, unless it's to use your annual dividend allowance outside an ISA or pension. Total return investing and occasional sales to match the income need is the way to go.

Arguable. The advantages of dividends is that they provide a regular income requiring no effort or decision to take them, they are less volatile than share prices, and consistent dividend paying companies can be a useful proxy for defensive shares. On the other hand annual rebalancing of a total return portolio along side a tranche of cash is also useful and not a great deal of extra effort, though perhaps rather less of a steady source of income. In practice, like with most either/or decisions in investing, the best answer is probably both.

jamesd

bostonerimus wrote: »

In the US active funds are less tax efficient than passive funds because of the tax on the short term gains. How does the UK tax those?

In the UK outside any tax wrapper:

1. The capital gains tax rate is the same for below one year and above one year holding time.
2. The capital gains tax isn't paid each year, only when you sell the fund. So you don't lose the compounding on the tax based on trades within the fund, just when you act.
3. The fund manager fees are all just paid by deduction from the fund daily value, no split out charges. They show up as a reduced capital gain.
4. The first £11,300 of capital gains in each tax year are tax free. Sell then buy again later is an easy tax reduction strategy.
5. ETF and unit trust taxation is the same. The ETF tax advantage in the US doesn't exist here.
6. There used to be a dividend tax credit but that was recently replaced by an annual tax free dividend allowance.

The incentives that have favoured ETFs and passives don't exist here and paying dividends is also less inefficient.

Few people here are aware of the huge importance of tax in shaping what has grown in the US and the tendency is to just ignore the big differences.

Linton

Also, from what I have seen tax allowances and the limits on tax free investing are far more generous in the UK than in the US. Unles they are presented with a large lump sum most people can carry out all their investing within an entirely income/CGT tax free environment.

TheTracker

bostonerimus wrote: »

Wow, so even without paying tax on their short term trading gains the vast majority of UK active managers still can't beat the index......that really underlines how poorly active managers perform.
(Admittedly this is for 1997 to 2008 and it would be nice to have a more recent analysis)

http://www.pensions-institute.org/workingpapers/wp1404.pdf

I reckon SPIVA scorecards are the go to evidence base. https://us.spindices.com/search/?ContentType=SPIVA

dunstonh

bostonerimus wrote: »

Wow, so even without paying tax on their short term trading gains the vast majority of UK active managers still can't beat the index......that really underlines how poorly active managers perform.
(Admittedly this is for 1997 to 2008 and it would be nice to have a more recent analysis)

http://www.pensions-institute.org/workingpapers/wp1404.pdf

http://citywire.co.uk/wealth-manager/news/active-managers-smash-passive-in-the-uk/a897788

That one is a bit more up-to-date. It also comes to the same conclusion as you have with the US equity being 1 in 10. Except it also shows managed UK equity outperforming passive.

jamesd

TheTracker wrote: »

I reckon SPIVA scorecards are the go to evidence base. https://us.spindices.com/search/?ContentType=SPIVA

Only if the purpose is to mislead. Like just about everything on the subject they completely ignored human managers and teams and just look at what matters for passives, ignoring what matters for actives. That's not a surprise when SPIVA is produced by the S&P part that sells the use of their indexes to passive funds.

If you see anything which ignores changes in human managers and teams you know it's going to be of no use in informing a discussion of actives vs passives.

There's a certain business in the US that has had average performance since it's founding in 1839. Since a manager change in 1965 it's done quite well. The new manager was a certain Mr. Buffett, who seems to have done quite a good job at outperforming the results of the other textile businesses in the north-east USA. Managers that good - though that bad for buying in initially! - are rare but he's not the only capable manager around, just one of the best known.

As Citywire observed about SPIVA ignoring what matters for actives:

"their numbers stated in the article was 75% of UK equity funds underperformed over 10 years. Citywire’s findings are the polar opposite.

Citywire stitches together the performance of fund managers as they move companies as long as they remain in the sector. It's different from the fund angle and the reality is that in the UK All Companies sector, of those individuals with a 10 year track record 68% outperform."

jamesd

Linton wrote: »

Arguable. The advantages of dividends is that they provide a regular income requiring no effort or decision to take them, they are less volatile than share prices, and consistent dividend paying companies can be a useful proxy for defensive shares. On the other hand annual rebalancing of a total return portolio along side a tranche of cash is also useful and not a great deal of extra effort, though perhaps rather less of a steady source of income. In practice, like with most either/or decisions in investing, the best answer is probably both.

Perhaps, but the problem is the change from selection for best performance to selecting for just dividends. That was a disaster in 2008 because it led to high holdings in banks. Dividends are definitely useful but there are limits on how much pushing towards dividend paying instead of that plus cash buffer and occasional selling instead.

bostonerimus

jamesd wrote: »

Please stop citing misleading junk like that. Not one of the four studies actually looked at the actual fund manager performance. Instead by "fund manager" they meant fund or fund management house, completely ignoring the critically important changes in the human managers. That may not matter for passives but it does for actives.
.

I think describing a study by a Nobel Prize winning economist as "misleading junk" is a bit excessive.