Index/MA funds vs ETFs

tigerspill

Hi,

I appreciate that this might be a very basic question, but I am really struggling to understand the differences between Funds and ETFs.
My investing background has always been in funds - mainly from Vanguard and within that, the majority is their LifeStrategy multi asset funds.
I am about to tidy up mu investments as I previously had a portfolio invested through an IFA, and this in my opinion, seems way to complex and I want to move to MA funds ie pure index trackers.
I have not looked into ETFs in any detail yet as while I think I understand some of the differences, (traded a bit like shares) - I cant seem to understand the differences that would impact my choices.  Or what considerations I would use to choose.
So assuming say I wanted a Global Equities Index tracker and that there was a Fund and an ETF that were similar in tracking a Global Index, how should I go about choosing between a fund and an ETF.

Thanks

Albermarle

The main practical difference as I understand it is that when you buy and sell a fund the price is not fixed until the next valuation point . Depending on the fund/platform/timing , it can be up to 48 hours . On the other hand you can buy ETF's in real time .
It is probably more important for larger more experienced investors to be able to do this . If you are a buy and hold type it is not really an advantage . 
I think overall they both perform similarly if they are following the same index .

El_Torro

I'm certainly no expert either. I believe that what Albermarle is saying is true, though there are also inherently more risks in investing in an ETF than a fund. If you're planning to day trade then a multi asset fund isn't for you, then again an ETF global tracker probably isn't much use to you either if day trading is your game.

Personally I stick to funds, mostly because I don't quite understand the risks involved in ETFs, and my plan is to hold funds for years anyway. Perhaps if this thread gains more posts both the OP and I will be more educated on the matter.

Johnnyboy11

Some Investment Platforms charge different platform fees for Funds v's ETFs. For example HL charges 0.45% and 0% respectively. Also, the price you pay for an ETFs can be at a premium or discount to the Net Asset Value, depending on market demand. This is something to look out for.

Albermarle

Johnnyboy11 said:

Some Investment Platforms charge different platform fees for Funds v's ETFs. For example HL charges 0.45% and 0% respectively. Also, the price you pay for an ETFs can be at a premium or discount to the Net Asset Value, depending on market demand. This is something to look out for.

HL do not charge 0% for holding ETFs but they do cap the cost at a relatively low level ( depending on the type of account you have ) On the other hand each time you buy or sell an ETF on HL platform there is a £12? charge and nothing for funds .
AJ Bell and Fidelity also cap fees for holding ETF's at even lower levels than HL. 

JohnWinder

Lots of well put together information on this site:

https://www.bogleheads.org/wiki/Outline_of_ETFs_and_mutual_funds

Alexland

Johnnyboy11 said:

Also, the price you pay for an ETFs can be at a premium or discount to the Net Asset Value, depending on market demand.

ETFs have a creation/redemption mechanism that stops significant premiums or discounts developing so more of a consideration for Investment Trusts. Of course with anything exchange traded you also need to consider liquidity, the resulting market spread and lack of FSCS protection.

Albermarle said:

HL do not charge 0% for holding ETFs but they do cap the cost at a relatively low level ( depending on the type of account you have )

To be fair on the HL basic Share Dealing account there is no charge for holding exchange traded assets.