Selecting a global index fund

Ciprico

bowlhead99 wrote: »

For Vanguard's London stock exchange listed ETFs:
VWRL is their FTSE All-World ETF share class that pays out dividends and is priced in pounds
VWRD is their FTSE All-World ETF share class that pays out dividends and is priced in dollars

VWRP is their FTSE All-World ETF share class that accumulates dividends and is priced in GBP
VWRA is their FTSE All-World ETF share class that accumulates dividends and is priced in dollars
/quote

For those in the UK with a SIPP/ISA is there a difference between VWRL and VWRD ?

In both cases at some point the dividend $ get converted to £, either by VD or SIPP provider...?

If you aren't overly concerned about inc or acc - is there a material difference in final gains from one over the other apart from the compounding effect and potential re-investment costs...?

Thanks

ColdIron

aroominyork wrote: »

If you hold accumulating OEICs/ETFs outside of a tax wrapper, do you need to calculate the amount of reinvested dividend, declare it to HMRC and pay tax on it at your marginal rate?

Yes. Your dividends should be detailed on your consolidated tax certificate supplied by your platform so you don't need to work it out. You have a £2,000 nil rate allowance so only pay tax on amounts over and above this

https://www.gov.uk/tax-on-dividends

bowlhead99

ColdIron wrote: »

aroominyork wrote: »

If you hold accumulating OEICs/ETFs outside of a tax wrapper, do you need to calculate the amount of reinvested dividend, declare it to HMRC and pay tax on it at your marginal rate?

Yes. Your dividends should be detailed on your consolidated tax certificate supplied by your platform so you don't need to work it out. You have a £2,000 nil rate allowance so only pay tax on amounts over and above this

https://www.gov.uk/tax-on-dividends

Just for clarity...

(a) UK funds platforms that act as an intermediary in the chain of distribution/placement of open ended OEICs/ICVCs or unit trusts into the hands of private investors will usually include accumulated dividends in the consolidated tax certificate that they provide to the end customers.

However, for instruments traded on a stock exchange they are not really an 'intermediary' in the same sense as a fund platform operator would be in relation to open ended funds.

Instead, they just often just provide a nominee service to hold the financial instruments (companies and ETFs and ITs and bonds etc) on your behalf, receive dividends on your behalf, and process corporate actions on your behalf etc, acting as your nominee or agent. In that capacity, they will typically only include on your consolidated tax certificate the dividends that you actually receive in cash from such companies or ETFs. In other words, they will generally not go looking to see what income was made inside the company or ETF and *not* distributed.

So, if you hold a non UK domiciled ETF that has a lot of undistributed income, you quite possibly won't have that included on any statement received from your broker. You would need to go to (e.g.) Vanguard or iShares and get the 'undistributed income per share' figures declared for the ETF, once published by the fund manager at the end of the year. Whereas with an OEIC, you will probably get a tax voucher or year end consolidated tax cert from the platform operator - less legwork on your part.

b) for those that don't bother following the link, the "pay tax on it at your marginal rate" refers to the marginal rate for dividend tax (eg 7.5%, 32.5% etc) rather than your 'normal' marginal income tax rate (20%, 40%, 45% etc).

123mat123 wrote: »

bowlhead99 wrote: »

For Vanguard's London stock exchange listed ETFs:
VWRL is their FTSE All-World ETF share class that pays out dividends and is priced in pounds
VWRD is their FTSE All-World ETF share class that pays out dividends and is priced in dollars

VWRP is their FTSE All-World ETF share class that accumulates dividends and is priced in GBP
VWRA is their FTSE All-World ETF share class that accumulates dividends and is priced in dollars

For those in the UK with a SIPP/ISA is there a difference between VWRL and VWRD ?

In both cases at some point the dividend $ get converted to £, either by VD or SIPP provider...?

If you don't have a multi currency cash account (which you couldn't have with an ISA, but could feasibly have with a SIPP) then you will have the dollar dividends converted to GBP when they are paid to you.

Your broker/platform may have a % fee or exchange rate spread to convert the money from dollars to pounds.

If you aren't overly concerned about inc or acc - is there a material difference in final gains from one over the other apart from the compounding effect and potential re-investment costs...?

No, there shouldn't be a material difference. Practically speaking there will be a small difference based on when you get around to reinvesting the cash versus when it went ex-div, as prices move minute-by-minute. The price movement may be to your favour, or your detriment.

If you are in a tax free environment like SIPP or ISA, probably makes sense to use the accumulation version.

If you are in a taxable environment (general investment account) it is easier to remember to track the income and cost base for dividend tax and capital gains tax if you can see those cash amounts hitting your accounts and then manually reinvest them. The cash arising can be used for rebalancing too, if you are holding multiple things in your portfolio or adding new money from time to time. But depending on your platform provider there is typically some kind of transaction fee if you are buying things on a stock exchange, like ETFs, so you might decide you don't want to deal with reinvesting the cash flows and will just accept the more complex tax situation of accumulation shares.

StellaN

MonroeM wrote: »

My platforms Fidelity and iWeb do not offer VWRP so I am trying to source an alternative accumulating All World ETF. Does anybody know of another accumulating all world ETF instead of VWRP?

As IanManc stated, IWEB does offer VWRP however, if you want to also invest with Fidelity then send them a secure message because they may add this to their ETF list. They already have VWRL so maybe they will be able to offer you VWRP in future. I have done this in the past when an IT or ETF was missing from the list available so its worth a try.

I don't know of any other all world accumulating ETF's but their are a few Developed World ETF's to choose from both accumulation and distributing such as SWDA, LYXOR LCWL, HMWO, VEVE etc

Sue58

Is there any point in holding an All World ETF such as VWRP and a Developed World ETF like SWDA? I'm only really interested in accumulating ETF's.

Secondly, if for instance I decided to only hold one of these ie. SWDA, is it reasonable to add satellites for EM such as JP Morgan Emerging Markets IT,a UK small cap fund/IT and maybe a FTSE 250 or All Share index fund?

bowlhead99

Sue58 wrote: »

Is there any point in holding an All World ETF such as VWRP and a Developed World ETF like SWDA?

Is there a point in using a all world index allocating your money on a 'free float market cap' basis across $51 trillion of company equities; and then doing it all over again in a second fund which only covers $45.5 trillion because it ignores emerging markets? And holding both those funds together?

Doesn't make much sense to me but it depends what you are trying to achieve; there's no accounting for taste.

Secondly, if for instance I decided to only hold one of these ie. SWDA, is it reasonable to add satellites for EM such as JP Morgan Emerging Markets IT,a UK small cap fund/IT and maybe a FTSE 250 or All Share index fund?

If you have deliberately excluded emerging markets from your main holding then yes it is reasonable to add a global emerging market fund. Emerging markets don't need to be thought of as non core.

Whether JPM or a tracker is best, who knows (I use JPM in my workplace pension, because choice is limited).

Whether you want UK small cap, mid cap or all share in addition to the UK allocation that exists within the broad index that you chose for part one of your portfolio, is a matter of choice. Most people do like some 'home bias' to their investing and I have more than 5-6% UK exposure myself.

Most of what you get in the UK all share is large/mega cap companies, so adding that fund on the side would be duplicative of the make-up of the UK allocation in the developed world or all world index that you already had. Whereas a fund with greater weighting to medium or small companies will give you more 'UK facing' exposure.

Sue58

bowlhead99 wrote: »

If you have deliberately excluded emerging markets from your main holding then yes it is reasonable to add a global emerging market fund. Emerging markets don't need to be thought of as non core.

Whether JPM or a tracker is best, who knows (I use JPM in my workplace pension, because choice is limited).

Whether you want UK small cap, mid cap or all share in addition to the UK allocation that exists within the broad index that you chose for part one of your portfolio, is a matter of choice. Most people do like some 'home bias' to their investing and I have more than 5-6% UK exposure myself.

Most of what you get in the UK all share is large/mega cap companies, so adding that fund on the side would be duplicative of the make-up of the UK allocation in the developed world or all world index that you already had. Whereas a fund with greater weighting to medium or small companies will give you more 'UK facing' exposure.

Thanks for your post bowlhead. I am veering towards the following for my growth portfolio:

SWDA - 80%
EM - 10%
UK Mid Cap - 5%
UK Small Cap 5%

I have not made a final decision on whether the satellite funds should be active (IT's or funds) or passive as I need to do more research.

stphnstevey

stphnstevey wrote: »

What does this actually mean in practise?
So if the investment company running the ETF, say Vanguard, goes bust then there is no FSCS
So possibly more well established companies running ETFs are better?
If your platform is covered by FSCS and platform goes bust, it doesn't matter if you have ETFs or OIECs, the platform is covered?

It was an interesting point brought up with regards FSCS

bowlhead99

Sue58 wrote: »

Secondly, if for instance I decided to only hold one of these ie. SWDA, is it reasonable to add satellites for EM

This may sound pedantic, but I wouldn't describe an emerging markets fund as a 'satellite' fund if for some reason you have missed those markets from your main holding by using SWDA. Emerging Markets, IMHO, should be just another part of the core of your investments, even if they happen to be in a different fund and rebalanced periodically against the rest of the core.

if you are doing 'core and satellite', 'hub and spoke' or whatever you want to call it - the core of what you are doing should be to invest in all major useful regions and industry sectors according to some strategy, and ideally cover the major asset classes when doing it. The core strategy of your portfolio should give a decent return over time.

Then if you want to make a tactical or thematic tilt, perhaps to a particular industry, type of company, size of company or geographic region, you could add a specialist fund to give you extra overall weight in that aspect. Perhaps you really like businesses that seek to capture the upside from themes such as 'an ageing population', 'robotics and automation', 'sustainability' or 'branded consumer products'; or 'funds focused on 'Asia ex-Japan' or 'smaller companies' or 'dividend paying companies', so you will buy some more of that type of fund to add to the companies in those same sectors and regions that you already have in your core, but with an enhanced weight.

Emerging markets are stock markets which are less established or developed than 'developed markets', but which sit in countries with, in aggregate: billions of population, trillions of GDP and market capitalisation. The markets may be less correlated to developed markets and have decent long term potential. There is no real rationale for excluding them from the core of your investments.

Ignoring emerging markets for the core of your investing would be as shortsighted as saying the core of what you invest in for the long term will be global equities ex UK, or global equities ex US... and then having kicked one or both of those countries out of your investing world, you will need to go and get some UK or US exposure to orbit the rest of the planet like the moon moves around earth, tugging the tides around from the sidelines in the hope of getting a better result than if you had just stuck with the ineffective core which had gaping holes in it.

The more sensible strategy would be to have US, UK, Emerging markets and all the other main markets within the core of what you are doing. Then if you want to overweight companies with particular characteristics (small companies when you already have companies in those industries, more UK listed companies when you already have companies in the UK, more tech companies when you already have tech companies), you might refer to them as 'satellites' as their orbits will have some influence on the overall shape of the portfolio as it carves out its course.

Sue58 wrote: »

Thanks for your post bowlhead. I am veering towards the following for my growth portfolio:

SWDA - 80%
EM - 10%
UK Mid Cap - 5%
UK Small Cap - 5%

Seems quite 'normal' compared to some of the ones we see on here, though obviously 100% equities is aggressive; and before you go looking at active vs passive for the latter three components it woulds good to be able to articulate why the high level asset class allocation in your portfolio will be better than one that has been put together by a professional with some science or research behind it.

StellaN

Sue58 wrote: »

Thanks for your post bowlhead. I am veering towards the following for my growth portfolio:

SWDA - 80%
EM - 10%
UK Mid Cap - 5%
UK Small Cap 5%

I have not made a final decision on whether the satellite funds should be active (IT's or funds) or passive as I need to do more research.

If your proposed 100% equity portfolio is only for growth as you stated and you have other asset classes as well (cash, fixed income/bonds, wealth preservation funds etc) then it seems fine, if it suits you, it is obviously your choice.

Personally, at the moment I am only invested in active funds but if I was to consider a global index fund as the core of my portfolio, I would go for an accumulating All World Fund or ETF such as VWRP or the HSBC FTSE All World Index Fund. In my case, it would be VWRP purely because of platform costs. As an alternative (if platform costs permit) I would also consider the Vanguard FTSE Global All Cap fund, however in my case I would stick to the ETF because of the platform costs of holding funds.