Vanguard FTSE 100 and 250 ETF Trackers within Hargreaves Landsdown.

Lumphammer2

Under the HL fee structure, holding costs are lower for ETFs than UTs so could someone please confirm that getting ETFs makes sense - all other things being equal.

moneysavinghero

Unit Trusts are managed by well paid professionals, so you have to pay for their work.
ETF's just track an index so just a need a trained monkey to buy the appropriate shares and so will have much lower costs.

Depends whether you think that the highly paid guys managing the Unit Trusts can outperform the market or not and whether you are willing to pay for that.

dunstonh

It is unusual to favour one asset universe over another but it is correct that HL do that.  ETFs are slightly more complicated than UT/OEICs but if you understand the extra risks that ETFs have then it can make sense if the charging structure stacks up.

underground99

moneysavinghero said:

Unit Trusts are managed by well paid professionals, so you have to pay for their work.
ETF's just track an index so just a need a trained monkey to buy the appropriate shares and so will have much lower costs.

Depends whether you think that the highly paid guys managing the Unit Trusts can outperform the market or not and whether you are willing to pay for that.

Presumably he is comparing comparable products (i.e. index tracking funds) rather than comparing a passive index tracking ETF with an actively managed fund product and asking for our opinion between active vs passive.  And then looking at the universe of available products in that passive index space that can be bought through HL's service, he's noting that for large enough values the HL fee structure favours those index trackers which are structured as ETFs, rather than open-ended funds such as unit trusts or oeics; the annual fee is capped on the former and not until a much higher value with the latter.

These days there are plenty of large and reputable ETFs which use physical replication and have high liquidity, and the OCFs may be pretty comparable (e.g. Vanguard's FTSE 250 ETF is 0.10% OCF while HSBC's FTSE 250 open ended fund is 0.12%.  So if 'all things are equal', roughly speaking, (and you don't care about the things that are not equal, such as live pricing for ETFs or the FSCS protection with UTs) and you are comfortable with both types of product (ETFs can be a little more complex to understand) then you could just make the decision on the basis of which one gave you a better platform fee; saving HL's platform fee is a lot more than a few basis points of OCF.

Lumphammer2

Thanks all for the feedback.  Apologies to moneysavinghero if I was not explicit enough, but I think dunstonh and underground99 get my drift.

I was not aware of differing FSCS protection, would you be kind enough to briefly explain.

 

Albermarle

Funds get £85K compensation protection ( in case of fraud, insolvency etc ) and ETFs do not . THe chances of this protection ever coming into play are very small , especially for mainstream fund providers.
Note that although you save on the platform fee, buying or selling an ETF with HL costs £11.95 and buying or selling a fund costs nothing,

Lumphammer2

Thanks Alberbarle.