Currency exchange in Interactive Investor SIPP

[Deleted User]

I currently have two small DC pensions. The plan is to:

1. transfer both into Interactive Investors SIPP, which would result in a fund of just over 100K.
2. invest in plain vanilla ETFs, covering FTSE100 as well as 1 or 2 international indexes

My problem is that good ETFs for foreign markets are traded in other currencies. So, the question is about exchanging currency within II accounts.

II website indicates that they charge 1.5% on currency trades. That’s too much. On a 50k transaction I would lose 750 GBP. This wouldn’t be a one off either as I will have to rebalance and, ultimately, move money out.

Is there a cheaper way to convert currency? For example BP is an interlisted stock. Does II allow to journal BP shares from LSE to NYSE? If so, I should be able to change to USD for 20GBP, the cost of a 1 buy and 1 sell transaction.

Thanks!

AnotherJoe

Dont know about interlisting though i suspect the answer is no. The other issue you'll find is that apparently you cannot hold a foreign currency in a SIPP.(So I've been informed here several times)
So every time you change one (say) $ ETF for another it will go via Sterling which means Fx losses every time.


However, given you say you'd be buying a FTSE100 ETF amongst others i'd question the underlying point of this, FTS100 is IMO a poor investment its not really an index, due to its skewed nature of the top companies being the bulk of it by far, its really just about 20 companies across 5 or 6 industries, eg very skewed. And then you will trade individual company shares like BP, quite a risky thing to do on several accounts in the case of BP.
So whilst there might be a way to minimise Fx losses, IMO you are focussing on the detail to the detriment of missing the big picture, are these good investments in the first place.

EdSwippet

Deleted_User wrote: »

2. invest in plain vanilla ETFs, covering FTSE100 as well as 1 or 2 international indexes.

There isn't any need to convert currencies in order to achieve this. For example, all of Vanguard's ETFs marketed in the UK trade in GBP on the London stock exchange.

Are you sure you are not confusing ETF denomination and trading currencies? Quite a few ETFs traded in GBP on the London exchange might be denominated in USD, but that's immaterial to both how you buy and sell it and its long term performance.

[Deleted User]

AnotherJoe wrote: »

Dont know about interlisting though i suspect the answer is no. The other issue you'll find is that apparently you cannot hold a foreign currency in a SIPP.(So I've been informed here several times)
So every time you change one (say) $ ETF for another it will go via Sterling which means Fx losses every time.

.

Do you have a source for this? II website seems to claim otherwise, unless I misunderstood. I am not allowed to post links, but you can google for II sipp summary “Hold multiple currencies. Hold and trade up to 9 currencies, including sterling, US dollars and euros, to help you manage currency exchanges (FX)”

[Deleted User]

AnotherJoe wrote: »

However, given you say you'd be buying a FTSE100 ETF amongst others i'd question the underlying point of this, FTS100 is IMO a poor investment its not really an index, due to its skewed nature of the top companies being the bulk of it by far, its really just about 20 companies across 5 or 6 industries, eg very skewed. .

Good point. I have not decided which exact UK index to follow and gave FTSE100 as an example. Could be Allshare or 250. Probably won’t make a huge difference because UK is a relatively small portion of the overall portfolio. I agree though, all other things being equal, a wider index is better.

[Deleted User]

AnotherJoe wrote: »

And then you will trade individual company shares like BP, quite a risky thing to do on several accounts in the case of BP.
So whilst there might be a way to minimise Fx losses, IMO you are focussing on the detail to the detriment of missing the big picture, are these good investments in the first place.

My exposure to BP (or another interlisted company) would be limited to 3 days (I think) it takes for the order to settle. I would still be at risk for this period, like you say. In order to deal with it I would short BP shares for an equal amount for 3 days. Adds a bit of cost but removes all risk and the total cost is still under 0.1%.

Controlling costs is a part of the big picture. An important one. When investing, it is the only part of the performance you can control.

What I was trying to describe is what they call “Norbert’s Gambit”. Works very well in N America, but I never used it in Britain. I live in Canada now, but a small portion of my assets is stuck with UK pension funds, which is why I am trying to figure out how the system works. Appreciate your help.

[Deleted User]

EdSwippet wrote: »

There isn't any need to convert currencies in order to achieve this. For example, all of ... marketed in the UK trade in GBP on the London stock exchange.

Are you sure you are not confusing ETF denomination and trading currencies? Quite a few ETFs traded in GBP on the London exchange might be denominated in USD, but that's ... to both how you buy and sell it and its long term performance.

I was looking at JustETFScreener. Low cost ETFs for non-British shares seem to be traded in USD or EUR, e.g. “Risk and fees of HSBC EURO STOXX 50 UCITS ETF EUR” or “Strategy of iShares Core S&P 500 UCITS ETF USD (Dist)”.

Then again, now I see that these ETFs are quoted in GBP. Silly me, thought that “USD” in the name stood for the actual currency used to buy the product rather than “non-hedged”.

Thanks!

AnotherJoe

Deleted_User wrote: »

Do you have a source for this? II website seems to claim otherwise, unless I misunderstood. I am not allowed to post links, but you can google for II sipp summary “Hold multiple currencies. Hold and trade up to 9 currencies, including sterling, US dollars and euros, to help you manage currency exchanges (FX)”

That's with reference to their trading account. (I have a trading account there and indeed it has that feature)

See if you can find it for SIPP or ISA.

[Deleted User]

AnotherJoe wrote: »

That's with reference to their trading account. (I have a trading account there and indeed it has that feature)

See if you can find it for SIPP or ISA.

No. I am quoting from their page for SIPP. The feature does not exist for ISAs.

AnotherJoe

Deleted_User wrote: »

No. I am quoting from their page for SIPP. The feature does not exist for ISAs.

Thanks i stand corrected and those who advised me here were obviously wrong.

That's better than my SIPP account with HL then, where that facility isn't available.