Baille Gifford positive change alternatives

Dave360180

I’m looking for a fund like the Baille Gifford positive change fund but with a cheaper management charge than 0.6%. Any ideas ?

Ideally :

- ethical, positive screening
- hold for approx 20 years
- passive or concentrated
- low management charges

Cheers

bowlhead99

daveandgem wrote: »

Ideally :

- passive or concentrated

So your 'ideal' fund would either be one that invests broadly and simply copies an index which was created from a screening formula; or one that is highly selective to find the favoured companies which are both doing good things and have prospects of decently growing their owners' wealth compared to rival options.

Those are literally opposite processes so I'm not sure how both methods would be 'ideal' for you. The former would be cheaper but it's not what the Baillie Gifford fund does.

- ethical, positive screening

- low management charges

These might be at odds with each other.

Negative screening is perhaps cheaper and easier because you can tag companies which have certain adverse features (e.g. sells tobacco or alcohol, supplies the military, markets products based on fossil fuels, publishes movies which might contain sex scenes...), and then just cut them out of the pool and invest in the rest.

Positive screening - to critically evaluate what type of 'societal good' is being done and whether it is going to enhance your portfolio returns and should be let into your fund - on the face of it would seem to be more complicated. If you want to overlay some thought and judgement calls on the hundreds or thousands of prospective target companies worldwide, this is active management and you will need to pay for that if you want it done competently.

BG have a high conviction approach to identifying companies with certain positive attributes which fit their framework, so they end up with a fund where their top 10 investments make up half the overall value of the fund.

By contrast, Vanguard (whose SRI Global Stock Fund is only around half the running costs of BG's), don't have much more than 10% of the money in the top 10 of their 1800 stock portfolio and use simpler market-cap weighting. so Apple takes 2% of the portfolio because it's close to being a trillion dollar company while Coke only takes a quarter of that because it's smaller, not because its credentials are assessed as any less 'socially responsible' or because the business has lower prospects of making you money from its current value.

Both businesses are in Vanguard's index because they don't fail the SRI screening, rather than because they are doing standout work to improve society (though in their own various ways, they both are doing some good things, at the same time as doing things we might personally consider damaging, too)

The main issue with taking an 'ethical' approach to investing - other than having to accept that you are eliminating certain profitable industries and companies and so shouldn't expect to get the same high level of returns as non-ethical investors who have a free range to invest in everything - is that everyone has their own ethics.

If you look at the top 10 of the Vanguard SRI fund you'll find names like Facebook, Amazon, Exxon, JP Morgan, Nestle, Pfizer, Google etc. You will find campaign groups in various corners of the world fiercely protesting each one of them. But they don't direclty manufacture weapons or tobacco so I guess they are fine? Filling the portfolio with a representative sample of a 2000- company global index containing most of the companies you can think of while only screening out certain characteristics, is a cheaper way of doing it than what BG are doing, which is why the Vanguard fund only costs 0.35% instead of 0.6%.

As you explore ethical investing further you will come to realise that (a) 0.6% is not a particularly high OCF for an actively managed ethical fund; (b) constructing a portfolio positively from the bottom up based on qualification for 'positive things in society' is complex and inherently subjective; (c) your personal ethics may not align with any one portfolio mix, and any screening criteria you have yourself will cut down the available options.

aroominyork

[FONT=&quot]Many ethical funds have done well over the last few years because the companies they hold are more likely to be SME, which have had a good run. My workplace pension is in L&G funds and their SRI fund has trounced its global equity fund over the last three years. Past performance, however, is no indication…[/FONT]

[FONT=&quot]L&G launched a World Climate Change fund early last year, charging 0.30% OCF. Its objective is to increase exposure to companies they believe are well-positioned for the transition low-carbon economy and lower exposure to companies with high carbon emissions and fossil fuel assets. However to reinforce the point made in bowlhead’s excellent post, you will find many of the ‘usual’ names in its top ten: Apple, Microsoft, Proctor & Gamble, Exxon Mobil, Shell etc.[/FONT]
[FONT=&quot]
[/FONT][FONT=&quot]PS I realise my post suggests low carbon = ethical, which of course is messy thinking, but the info may be useful anyway.
[/FONT]

MarkBargain

It's great that you are interested in ethical investing and think of people and the planet.

I think the Baillie Gifford 0.6% charge is very reasonable, considering I pay just over 1% to Fund Partners WHEB for a similar fund.

firestone

would think for the likes of BG Positive,Jupiter Ecology or Impax Environmental Markets(which i use) etc you are paying the extra fee for active managers in a more niche area so is probably worth paying for.SRI investing gives a more wide range to invest in but as others have mentioned it could be companies you would not think of at first.So it will depend on what you are trying to achieve,but would guess there are ETF's that cover both

Dave360180

Thanks everyone, greatly appreciated - I’ll go with BG then.

Has anyone had any luck with saving fees whilst holding overseas shares directly ? I imagine the fund will have a better chance of recovering the withholding taxes (and my spouse doesn’t have a tax liability so won’t get any credits) but I like the idea of holding shares directly. Eg management fee, custodian fee, depositary fee etc. Cheers.

bowlhead99

daveandgem wrote: »

Thanks
Has anyone had any luck with saving fees whilst holding overseas shares directly ? I imagine the fund will have a better chance of recovering the withholding taxes (and my spouse doesn’t have a tax liability so won’t get any credits) but I like the idea of holding shares directly. Eg management fee, custodian fee, depositary fee etc. Cheers.

I have some UK shares held the old fashioned paper way but the ones I have on foreign exchanges (major exchanges eg US, HK, Germany etc) are all held electronically... so when you say "directly" they are 'direct' vs indirect through a fund, but not direct in the sense of being on the company's share register myself, I'm through my broker's nominee company so there is still an account fee/custody fee call it what you like.

To build your own portfolio of ethical stocks will certainly save management fees but is your wife going to help you expertly identify a portfolio of 30 international stocks for you to construct a diversified portfolio to buy on the foreign exchanges with low transaction fees?

Dave360180

Thanks bowlhead99.

I’m not worried about picking the shares, I could easily pick the ones I like out of the BG fund list.

The question i would like to understand is how typical charges for transacting / holding overseas shares compare to the ongoing management charges ?

bowlhead99

daveandgem wrote: »

Thanks bowlhead99.

I’m not worried about picking the shares, I could easily pick the ones I like out of the BG fund list.

The question i would like to understand is how typical charges for transacting / holding overseas shares compare to the ongoing management charges ?

Within a fund, global custody and trading costs are low in the context of total assets and deal sizes. And when you buy into the fund with your £10000, another person might be leaving the fund at the same time for £10000, so the fund doesn't actually have to buy any new shares for its portfolio as the subscriptions and redemptions just wash out in terms of its pool of liquid cash.

However, when you are holding a portfolio directly and you want to buy £10000 worth of shares across ten UK companies, the UK government will require you to pay 0.5% stamp duty which is £50, and your broker may charge you £10 per trade which is £100, so you've spent 1.5% of your new capital to get it deployed. Some countries have different rates of stamp duties or other fees and trading on some exchanges might be more costly than others.

Also with foreign shares: generally if you are telling your broker to use your GBP to buy (eg) USD to buy some Tesla shares, you might lose a percent commission against the mid market FX rates, unless the deal size is pretty large or the broker is particularly competitive on their charges. By contrast, BG buying $5 million will do it much closer to institutional spot rates if they don't have the currency on hand already.

All brokers or platforms have a charge sheet for what it costs to trade and what it costs to hold stuff, but what you actually spend will depend on how much trading you actually do.

An active investor with an average hold period of nine months will spend more on trading than someone who holds the assets for a decade. But will a particular company share that you or Baillie Gifford like today (a) still qualify as providing positive societal change eight years from now, AND (b) still be priced at a level relative to their prospects that makes them attractive for your portfolio eight years from now? Or will you perhaps sell them off after only a couple of years - or even in a matter of months from now - because you feel they no longer qualify under (a) or (b).

If you do most of your investing with one broker but then find a company you like on the Jakarta or Johannesburg stock exchange and your broker doesn't offer trading on that exchange, you might have to set up a new broker relationship just for that one Indonesian or South African stock you like while having the rest of your money with the broker who does your US and Canadian and German and Hong Kong and Italian trades. Maybe that broker has a fixed fee or a percentage based fee, for buying, and for holding, and maybe he has a high fee for wiring cash from your account with him into your account with the other broker who holds your Australian shares which you will choose to buy with the proceeds when you dispose of the South African one.

So it's pretty difficult to guesstimate how much you will spend on your trading pattern when you haven't established what your trading pattern is going to look like because you've never tried to run a diversified portfolio of individual shares in a 'positive ethical' strategy. If you bought the BG fund, sure, you might hold it for 10-20 years if it doesn't fall by the wayside or merge into another fund. However, the underlying companies held by the fund would not will be held by the fund in the exact same ratios for a decade plus. Companies will live up to their thesis or not, and be exited when the exit plan says so.

You can look at fee structures from brokers and do some sort of guesstimation of what it might cost to run a large and diversified portfolio of international holdings for a period of time. Maybe you find that the trading costs you incur are lower than the OCF of the fund and could objectively say it was cheaper. And maybe your model will show that the cost savings won't be lost by the potential extra tax effect of paying CGT as you churn the directly held portfolio, versus just paying CGT when you exit the BG fund in a decade's time. However, ultimately your overall result is shaped by more by the gross returns of the investments than by the transaction, management and custody costs of the investment.

So a key thing to ask yourself is, even if your costs are low, will you make as good stock selection and timing decisions as BG who have millions of pounds to spend on research and people and valuation models?

BG will publish their full holdings every six months or so, some time after the financial period is ended. The holdings will include some shares that they are happy to pick in the context of them also holding other shares in rival businesses or with complementary characteristics which can lower the overall volatility of their portfolio for a given rate of return. Whereas it sounds like you are going to look at the reports of what they used to hold (which is after all what any historic investor report is) and use that as a filter list to pick some stocks that you fancy from time to time, which were once part of their holdings.

You would be doing so without knowing quite why or when they chose to buy them - though you could do your own raw research and form your own opinion - and even if you did copy their holdings you will be buying and selling at different prices and get a different return. So, while costs would be controlled, the overall return might be several times better or worse.

Dave360180

Thanks again to bowlhead99 - I’ll go with BG then.