Ongoing Charges vs Transaction Fees

underground99

coyrls said:

Linton said:

coyrls said:

Andrew895 said:

Thanks again @underground99 .  Aaaagh! - all this is quite frustrating!  Following your post above, I've checked back on some iShares US Equity tracker units I bought.  The fund information on fid-ellities site states the prices today are 280.4p buy, and 266.8p sell.  To me it's as clear as day that there's a spread here.  So I calculate what the prices were when I bought - historic prices aren't on the site so I used the growth graphs - and came up with 262.4 / 249.7.  The price I actually got was 250.0, so just as you said, the spread has not been applied. I've spent much time finding alternative funds with no spread to replace the ones I was recommended, a waste it seems.  I've phoned F. to check pricing and they inform me there is a "creation price", and confirm that on the day the prices were 262.5 / 249.7 / 250.0.  I point out there's no mention of creation price anywhere and the chap says he agrees it's frustrating and he'll pass on the point about creation price to someone.  It seems a poor show if F. can't be clear about something as basic as the price of units.  Is this the norm in the industry, would you say?

Are you sure that's not an ETF?  In a previous post you said you were talking about OEICs.

There are are iShares OEICs. See https://www.trustnet.com/factsheets/o/g6vm/ishares-us-equity-index-uk-d-acc .

In that case, I'm confused about why you are seeing a spread and that a "creation price" is being quoted.

It's technically a unit trust, rather than an open ended investment company. A different type of legal structure, though both are used for open-ended investment fund products in the UK.

Though there can be exceptions, traditionally a UT is dual priced (creation and redemption prices for the units, which takes into account whether the underlying assets are priced for buying or selling) while an OEIC is generally single-priced (one price for the shares on a given day, though it's acceptable for the price to swing between a bid and offer basis depending on the weight of overall investor demand to net subscribe or net redeem from one day to the next).

In the example quoted, the creation price was 250.0p and the the redemption price was 249.7, so the spread is about 0.1%.  However, the OP was using a unit class that is allowed to charge an initial 5% fee, meaning that the maximum an investor might need to pay would be 5% above the creation price, i.e. 262.5p. In disclosing the last buy/sell price on their site, Fidelity have no choice other than to disclose the 'official' bid/offer price of 249.7/262.5 which they are fed by the fund manager or the market data service to which they subscribe.

In practice, because Fidelity will have arranged to have that 5% initial charge waived or discounted away to nothing, they can show 'fund provider buy charge: 0.0%'. All the other mainstream UK platforms will do the same, so nobody is really going to pay the 5% to buy Class H of the iShares North American Equity tracker and instantly lose that big chunk of money if they redeem. So as an investor in the fund you will just subscribe for 250p or redeem for 249.7p, being the creation and redemption prices derived from the fund valuation bases done by the fund accountants.

Today on the Fidelity site (my link in paragraph above) the fund is showing that the Friday 9 April price was 282.50p/268.80p.  The 282.5p will include 5% on top of the real creation price, which won't in practice need to be paid by a Fidelity customer. So the investor would only pay 282.5p/1.05 =269.05p to buy a unit, while receiving 268.8p if he sold instead. The spread in practice of 0.25p is a bit less than 0.1%, while the apparent spread (that nobody pays) is about 5%.

You can get the prospectus from Blackrock's own site at https://www.blackrock.com/uk/individual/products/269672/ishares-north-american-equity-index-fund-uk

coyrls

Thanks, there's not so many Unit Trusts around these days.  My confusion was that it was being described by the OP as an OEIC with dual pricing, which is what I didn't understand.

Andrew895

@coyrls , my confusion, TBH I thought all unit trusts were called OEICs nowadays.

I can see the explanations above of the various prices involved, but I still maintain it is perverse that you can be looking at F's own factsheet, not the fund manager's, and it fails to indicate the existence of the creation price.  Instead of giving an irrelevant and incorrect buy price (for a F. customer) it surely should quote the most recent creation price (=buy price to me the customer) and the sell price.

@dunstonh ,  you said "they do disclose the actual charges before you press submit" but I just checked this by pretending to buy some of the iShares US.  The latest buy price shown on the "buy" panel is 282.5, and as noted above the full spread is 282.50p/268.80p, so it is not telling me the latest true price.

I also looked at the Blackrock prospectus kindly linked, but could see no mention of any creation price or discount available. Although it starts off saying "We are currently experiencing technical difficulties with publishing our offer prices" !

So as far as I can see, if I want to know what the deal is when there is a spread quoted, I need to call F.

underground99

Andrew895 said:

 I still maintain it is perverse that you can be looking at F's own factsheet, not the fund manager's, and it fails to indicate the existence of the creation price.  Instead of giving an irrelevant and incorrect buy price (for a F. customer) it surely should quote the most recent creation price (=buy price to me the customer) and the sell price.

Fidelity do not set the prices. They are told the last official prices by the fund manager or a markets data provider, so that's what they have to disclose. The price that they show is not a price that you can buy or sell at anyway, as it's an old price and not the price that you would get if you were to place an order now: funds are not valued until the valuation point, which is after the cut off for placing an order to get that valuation.

Andrew895 said:

@dunstonh ,  you said "they do disclose the actual charges before you press submit" but I just checked this by pretending to buy some of the iShares US.  The latest buy price shown on the "buy" panel is 282.5, and as noted above the full spread is 282.50p/268.80p, so it is not telling me the latest true price.

He is saying they will disclose the *charges* before you place an order; the fees or expenses that would be charged to you if you bought the fund. That includes ongoing charges, transaction costs, performance fees, fund provider's initial buy charge, fund provider's sell/exit charge.

For this fund bought through Fidelity the buy charge, exit charge, and performance fee are all nil, so you're not going to pay any of those types of fees if you buy the fund.

He is not saying they will disclose the actual *price* you'll pay before you place the order, because they don't know the price, as it isn't set until after you place an order and the valuation point is reached.

All they can tell you for indicative pricing is what they are fed by the fund manager from an official source. They have thousands of funds and fund classes and stocks available and and are not going to edit and customise the prices they receive each day.

Andrew895 said:

I also looked at the Blackrock prospectus kindly linked, but could see no mention of any creation price or discount available. Although it starts off saying "We are currently experiencing technical difficulties with publishing our offer prices" !

So as far as I can see, if I want to know what the deal is when there is a spread quoted, I need to call F.

The Key Facts section of the BlackRock page linked, and the prospectus, says that Class H has an initial charge of 5%. However through Fidelity and any of the other mainstream consumer platforms you won't need to pay that (the Fidelity page says "fund provider's buy charge" is 0.00%).

So as you are not paying that initial buy charge, if you were to have bought at the Friday valuation point your buy price would have been accordingly lower than the 'official' published price visible on Fidelity; you would have got 269.05p instead of the published 282.5p.

Likewise when you actually did a purchase yourself through Fidelity, you got a buy price of 250p instead of the 'official' 262.5p. The extra 12.5p that you didn't pay was the 5% element on top of the 250p issue price. The maximum you could have been required to pay (if you didn't buy on a consumer platform which arranged for you to avoid some or all of the preliminary charge of 5%) would have been 250p +5% = 262.5p.

As it was, you checked out the fees and charges (0.05% OCF, 0.1% TC, 0% fund provider buy charge) and were happy to go ahead with your purchase, despite the distraction of the apparent spread. The price per unit info is less important, because from your perspective as a buyer you just want to spend £x on buying units, pay the y% of disclosed charges, and the price isn't going to be known until after you place the order. So it doesn't really matter if BlackRock are having technical difficulties publishing their offer prices. If you are not a buyer but a seller, then the bid price is what's important, and they are not having any trouble publishing that.

dunstonh

@dunstonh ,  you said "they do disclose the actual charges before you press submit" but I just checked this by pretending to buy some of the iShares US.  The latest buy price shown on the "buy" panel is 282.5, and as noted above the full spread is 282.50p/268.80p, so it is not telling me the latest true price.

The disclosure won't mention the actual unit prices.  It will mention the charge both in percentage terms and monetary terms.   It will be a pdf download.