Global Tracker - Methodology and questions

ChilliBob

Hey guys,

I have selected what I think is the most appropriate global tracker for me, however, I’d appreciate some input on my selection criteria, which is heavily influenced by Monevator. I’ve also got some questions on this methodology.

TLDR: I chose this fund: HSCB FTSE All World Index Fund. 

Questions:

1.       Any flaws in the methodology (see below)?

2.       Tracking error/difference vs OCF? – Is double the OCF worth it for smaller tracking error?

3.       Yield – you see this on all the sites, but it never seems to get mentioned on blogs comparing indexes?

 

Methodology:

Choose the index I want to track. I want to be as broad as possible, and found this useful pic:

·       So FTSE All World or MSCI ACWI IMI are the broadest and the ones I’m interested in

·       I then produced an XLS with the following columns:

Fund Type (OEIC or ETF)

Index tracking

OCF

Tracking Error

Replication Method

Reporting Status

Domicile

AUM

PTR

Initial Fee

Redemption Fee

UCITS Approved

Returns 1Yr

Returns 3Yr

Returns 5Yr

Returns 10yr

Bid/Spread

Trading Vol

NAV

 

I looked at Morningstar for funds tracking those indicies and narrowed it down to a small selection. I found as much info as I could (obviously some of the above is tricker to find than others, and some only relevant to ETFs)

I then selected the HSCB FTSE All World Index Fund (See here for more info: https://www.fundslibrary.co.uk/FundsLibrary.DataRetrieval/Documents.aspx/?type=packet_fund_class_doc_factsheet_private&id=21db7ab2-ae28-46df-a101-90d39d1e5a19&user=Uspzqg3ar5%2fUGG5ittV1jDKaFruSUZ5E3SQN8f9pCztCk2pMJufHvpE%2fb4RkHi2k&r=1)

This seemed to tick all the boxes. A close contender was the Vanguard one, FTSE All World. It’s tracking the same index but the OCF is 0.22 vs 0.13. I can see the tracking error/difference is smaller/closer with Vanguard though. I know this is important, but not sure the interplay with this vs fees?

At first this will be for a modest 20k investment, but later on something larger, so small differences in fees and tracking will add up. I'll also need to diversify manager wise (probably) so will be good to make sure my plans make sense!

Thanks for reading

Albermarle

Chilibob- I think you are maybe reaching a point of overanalysis . Either of those two  are fine.
If you go for the HSBC OEIC then you are better using a platform with low charges for OEIC funds.
If you go for the Vanguard ETF , you are better on a platform with a cap on charges for holding ETF'S

ChilliBob

I'll be using iweb or II for these funds. Probably both. Over analysis for 20k yes, but if it was hundreds of thousands?!

Linton

I believe you are over-thinking things.The difference between 0.13% and 0.22% is £18 out of your £20K:  It really is swamped by noise.
1) The published charges will vary over time because they represent the actual expenses in the previous n months.  Next year the comparison could be significantly different. 
2) You can get that change in the market in an hour.  Just by delaying your investment a few days while you do the maths could have cost many years worth of charges.
3) Choosing a marginally different index would have a far greater effect.
4) Choosing to put 10% in a secondary fund such as EM or small companies could have a far greater effect.
5) One of the whole points of index investing is to make life simple.  Feeling you need to undertake the level of research you may want to do with an active fund negates that advantage.  If you really want to research there are much more potentially lucrative areas in which to do it.

ChilliBob

Thanks Linton. To answer some of your points 

I'm agonising over this choice because it'll be applied go a far bigger pot, but, I guess the same points still apply - yes I'd save 180 on a 200k pot but I could still be gaining in the market.

Any opinions on the index I have chosen?

I was intending to go for a small cap fund, but couldn't decide a sensible percentage yet. 

I think I was just going across Monevator advice really, e.g. Only earlier this week did I find out about reporting status, withholding tax etc

Linton

ChilliBob said:

Thanks Linton. To answer some of your points 

I'm agonising over this choice because it'll be applied go a far bigger pot, but, I guess the same points still apply - yes I'd save 180 on a 200k pot but I could still be gaining in the market.

Any opinions on the index I have chosen?

I was intending to go for a small cap fund, but couldn't decide a sensible percentage yet. 

I think I was just going across Monevator advice really, e.g. Only earlier this week did I find out about reporting status, withholding tax etc

I am in favour of going for as broad an index as you can get.  FTSE All World is pretty much it.  The only broader one I know of is Vanguard's FTSE Global All-cap index fund which uses an index that includes Small Companies.  I believe that the index is not available elsewhere,  Perhaps it's something bespoke that Vagiard paid for.

With your initial small-ish pot I suggest you just leap in and start investing.  You can always change it whem you get more experience.

Alexland

If you are going to hold a similar passive global investment on those two fixed price platforms then I would go with the HSBC FTSE All World on one and the Vanguard Global All Cap on the other. They are both OEICs so you would get FSCS protection and there is no need to use an ETF as iWeb/II don't have capping.

Our main SIPP accounts are capped with World tracker ETFs (VEVE and HMWO) and we hold 10% EM via a workplace pension fund which is up an amazing 20% YTD so after a couple of years of EM going nowhere an All-World type allocation is starting to pay off.

ChilliBob

Thanks. Whilst this may be over analysis (and I accept that now), I do find it interesting to consider these things -like OCF vs tracking error, and at the moment I feel unable to answer them, which is irritating! 

ChilliBob

Alexland said:

If you are going to hold a similar passive global investment on those two fixed price platforms then I would go with the HSBC FTSE All World on one and the Vanguard Global All Cap on the other. They are both OEICs so you would get FSCS protection and there is no need to use an ETF as iWeb/II don't have capping.

Our main SIPP accounts are capped with World tracker ETFs (VEVE and HMWO) and we hold 10% EM via a workplace pension fund which is up an amazing 20% YTD so after a couple of years of EM going nowhere an All-World type allocation is starting to pay off.

What do you mean by 'iWeb/II don't have capping'?
As regards emerging markets, it's my understanding my HSBC intention would cover that. It'd just miss out small caps, for which a Vanguard Small Cap fund looks to fill the void.

Alexland

ChilliBob said:

What do you mean by 'iWeb/II don't have capping'?

iWeb and II just have fixed charges so it doesn't make any difference to the platform cost if you hold an OEIC or ETF so you might as well hold an OIEC as holding an ETF doesn't give you any platform fee advantage. Compared to Fidelity, AJ Bell, HL, etc where they charge a percentage fee but it is capped at a fixed limit on exchange traded assets such as ETFs. For example Fidelity cap their fees on holding ETFs in our SIPPs at £45 pa (plus £1.50 to reinvest divis) so it's cheaper for us to hold cheap World ETFs and get our 10% EM exposure elsewhere.

ChilliBob said:

As regards emerging markets, it's my understanding my HSBC intention would cover that. It'd just miss out small caps, for which a Vanguard Small Cap fund looks to fill the void.

Yes - the benefits of holding EM exposure (either separately or within the same fund) have paid off in the past year compared to going with a World only asset allocation.

ChilliBob

Oh I see. I'm not wedded to any platform, I only have an active iWeb account at the moment with this year's ISA allowance (ready for this HSBC fund!). Interesting regarding the ETFs, I thought they were in general more pricey to purchase as they were treated as shares instead of funds - so with iWeb being £5 for either it didn't matter.

Surely you get a platform fee anyway though with those others? - Or are you saying you could take out an ETF with Fidelity and pay 45 quid? Regardless of whether it was 100k or 500k you put into the ETF?

I think I may have got confused -bit all over the shop since NatWest decided to block my account and 'hide it' in Online Banking when I tried to fund iWeb half hour ago! - Fortunately just sorted and funded!