ETF's for ISA

barginfinder

I have a S&S ISA with H&L that I want to fund to the max this year and also transfer 10K from a cash ISA (paying 0.5%) . Because H&L cap ISA charges for shares and ETF's at £45 per year (and some other fund types) but charge 0.45% on unit trusts and funds - I'm looking at using ETF's as my investment choice, Bearing in mind I'm happy to take some risk, and I'm looking at 10 years or more before I look to cash out, are ETF's the right way to go as opposed to individual shares (high risk) or tracker funds (higher platform charges) to get the best value for the charges involved.

please also bear in mind I already have the S&S ISA with H&L and hence am committed to that platform until April 2018 (when I will probably open another ISA with Vanguard and use their lifestrategy funds with the lower platform fee)

Thanks in advance

darkidoe

barginfinder wrote: »

I have a S&S ISA with H&L that I want to fund to the max this year and also transfer 10K from a cash ISA (paying 0.5%) . Because H&L cap ISA charges for shares and ETF's at £45 per year (and some other fund types) but charge 0.45% on unit trusts and funds - I'm looking at using ETF's as my investment choice, Bearing in mind I'm happy to take some risk, and I'm looking at 10 years or more before I look to cash out, are ETF's the right way to go as opposed to individual shares (high risk) or tracker funds (higher platform charges) to get the best value for the charges involved.

please also bear in mind I already have the S&S ISA with H&L and hence am committed to that platform until April 2018 (when I will probably open another ISA with Vanguard and use their lifestrategy funds with the lower platform fee)

Thanks in advance

Not quite sure the what the question is but I am assuming it is about justifying ETFs for ISA rather than UT/OEICs funds.

Depends on
1) how often you trade? Drip feeding or lump sum.
2) How many ETFs are you looking at holding?

Generally, the OCF for ETFs are just marginally lower than equivalent Index funds (talking about Vanguard here). Probably minimum significance. Therefore you are right to look at the cost to trade and cost of platform holding fee.

Seeing as you are funding at least £30,000 into the ISA account and perhaps possibility of adding more over the years, a capped yearly fee is the one to opt for.

You have to consider of course that you have to deal with dividends manually yourself with etfs whereas there is the option of accumulation funds with OEIC/UTs.

grey_gym_sock

you mention vanguard lifestrategy funds. it is possible to get something pretty close to those funds by combining a few ETFs.

e.g. you could approximate vanguard lifestrategy 100% equities (inc) with:

80% vanguard FTSE all-world etf (VWRL)
20% vanguard FTSE 100 ETF (VUKE)

or, a bit more accurately (including more UK mid-cap shares) but also more complicatedly, with:

80% vanguard FTSE all-world ETF (VWRL)
16% vanguard FTSE 100 ETF (VUKE)
4% vanguard FTSE 250 ETF (VMID)

if you want an accumulation approximation of lifestrategy 100% in ETFs, that is harder, but there are a few accumulation ETFs available, and you might use:

80% ishares core MSCI world ETF (SWDA)
20% ishares FTSE 100 ETF (CUKX)

or, a bit more accurately (including emerging markets), you could use:

73% ishares core MSCI world ETF (SWDA)
7% ishares core MSCI EM IMI ETF (EMIM)
20% ishares FTSE 100 ETF (CUKX)

(though that is still short of UK mid-caps)

for less than 100% equities, just reduce the size of the equities ETFs proportionately, and add a bonds ETF. e.g. to approximate lifestrategy 80% equities (inc), you could use:

64% vanguard FTSE all-world etf (VWRL)
16% vanguard FTSE 100 ETF (VUKE)
20% either vanguard UK gilt ETF (VGOV) or ishares core UK gilts ETF (IGLT)

(that's not very accurate on the bonds side - lifestrategy actually includes many kinds of bonds - but that isn't so important when you only have 20% in bonds.)

you don't want to use too many ETFs, because you will pay a dealing commission each time you buy or sell an ETF. and you don't have to replicate lifestrategy perfectly! after all, it isn't the perfect investment strategy (whatever you might read on here ).

with HL, dealing commission is usually £11.95; however for a small number of ETFs, you can buy them for only £1.50 if you use their regular dealing facility. however, this can only be used to invest cash added monthly to your account by direct debit (so not to invest cash transferred from a cash ISA). on the plus side, regular dealing does seem to be available for some of the ETFs i've mentioned, viz.: SWDA, CUKX, EMIM, IGLT.

ColdIron

You could look at Investment Trusts as an alternative, same charging structure as shares and ETFs

EdSwippet

barginfinder wrote: »

... please also bear in mind I already have the S&S ISA with H&L and hence am committed to that platform until April 2018...

I'm not sure what lies behind this comment.

If you have already made some ISA contributions in the current tax year you cannot just open another, but you could transfer the HL one to a different platform and then buy the Vanguard fund that you want there. If you haven't made any ISA contributions to this HL ISA in the current tax year you are free to open a new one anywhere without restriction.

As grey gym sock outlines -- in considerable detail! -- you can certainly mimic a Vanguard Lifestrategy fund with a suitable selection of ETFs, and so get the same result. However, I'm not a fan of morphing my entire fund selection merely to sidestep a nonsensical platform charging policy.

If it were me, I would probably move away from HL now, choosing between iWeb/Halifax and other flat-fee platforms, buy the funds/OEICs I actually want -- probably using accumulation units to make things really simple -- and then just get on with other things in my life. I don't need to be messing about with ETF dividend reinvestment in my life, and perhaps you don't either.

jamei305

I considered selling my funds and buying ETFs and ITs in the face of HL's fees. In the end I decided it would make much more sense to transfer to iWeb, which is what I did.

barginfinder

EdSwippet wrote: »

I'm not sure what lies behind this comment.

If you have already made some ISA contributions in the current tax year you cannot just open another, but you could transfer the HL one to a different platform and then buy the Vanguard fund that you want there. If you haven't made any ISA contributions to this HL ISA in the current tax year you are free to open a new one anywhere without restriction.

As grey gym sock outlines -- in considerable detail! -- you can certainly mimic a Vanguard Lifestrategy fund with a suitable selection of ETFs, and so get the same result. However, I'm not a fan of morphing my entire fund selection merely to sidestep a nonsensical platform charging policy.

If it were me, I would probably move away from HL now, choosing between iWeb/Halifax and other flat-fee platforms, buy the funds/OEICs I actually want -- probably using accumulation units to make things really simple -- and then just get on with other things in my life. I don't need to be messing about with ETF dividend reinvestment in my life, and perhaps you don't either.

Thanks for this and too grey gym sock, really good advice - I have already contributed to the H&L ISA this year - so I understand I can't open another. Its good point about moving away from H&L all together - initially I liked the platform - but now I'm looking at larger sums the platforms become quite significant - the iweb platform looks like a really good bet for ISA's - £25 one of fee and that's it (compared to £45 per year with H&L assuming no funds)

Thanks again both - food for thought

Eco_Miser

barginfinder wrote: »

I have already contributed to the H&L ISA this year - so I understand I can't open another.

You can open as many as you like, but there are limitations on how you fund them, namely the whole of this year's S&S contribution must be in the same S&S ISA. This does not stop you opening a second S&S ISA by transfer from the £10k cash ISA, nor does it stop you transferring anything you paid into the S&S ISA before 6th April 2017 to several S&S ISAs (the ISA manager may have rules about split transfers though); nor are you prevented from moving this year's contributions as a whole to a different manager.

Glen_Clark

Why are you paying HL £45 a year when x-o has no annual fee and half the dealing charge?

barginfinder

Glen_Clark wrote: »

Why are you paying HL £45 a year when x-o has no annual fee and half the dealing charge?

good question, when I initially opened the S&S ISA I was planning to invest in low cost tracker funds and x-o don't offer those, circumstances have changed since then and a fixed rate cash (10k) ISA (2%) went to variable rate (0.5%) which made me think about transferring it as I already have 30k in 2 fixed rate ISA's (2 and 2.4%) I was happy taking a bit of punt with the 10k in S&S as the rates are so low now and inflation is going up - and now because the numbers are looking larger and larger, the platform fee is becoming significant - trying to work out my best options, with the much appreciated help and suggestions of the people on this forum.

Glen_Clark

barginfinder wrote: »

good question, when I initially opened the S&S ISA I was planning to invest in low cost tracker funds and x-o don't offer those, circumstances have changed since then and a fixed rate cash (10k) ISA (2%) went to variable rate (0.5%) which made me think about transferring it as I already have 30k in 2 fixed rate ISA's (2 and 2.4%) I was happy taking a bit of punt with the 10k in S&S as the rates are so low now and inflation is going up - and now because the numbers are looking larger and larger, the platform fee is becoming significant - trying to work out my best options, with the much appreciated help and suggestions of the people on this forum.

I've been using x-o for many years (initially through the middlemen like Building Societies and other Brokers who use their services)
Always found them OK. Downloaded a form from their website and posted it to them to transfer a couple of cash ISAS in to existing S&S ISA.. Don't know whether its a good time to do it now though with equities close to record high.
I've still got one cash ISA (Coventry) but its paying 1.15% and I already have 88% in equities (mostly world tracker/S&P500/FTSE100 ETFs)