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ETFs a riskier investment category as not fully covered by FSCS?

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ETFs a riskier investment category as not fully covered by FSCS?

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gorahgorah Forumite
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Hello

I have moved my Vanguard passive trackers out of ETFs domiciled in the Republic of Ireland to passive funds managed in the UK. This is because after a long conversation with Vanguard (who were really helpful on this tricky subject) I discovered that as ETFs tend to be domiciled outside the UK, they are outside the remit of the FSCS to offer its full guarantee for money lost in stocks (due to bankruptcy etc, not falling stock prices, obviously). I do understand that Vanguard, in this instance, does not actually own the stocks but acts as an intermediary and that if Vanguard failed I would likely recover my money, but I still felt like it was the right choice. Of course the reason why I am posting here is my knowledge is limited. So, those of you who know a bit more about this than I do: was I right to move out of ETFs? I note this issue of ETFs being outside the full FCSC scheme is rarely mentioned in decision-making on passive trackers, so perhaps I am getting the wrong end of the stick?

Thanks

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  • dunstonhdunstonh Forumite
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    I have moved my Vanguard passive trackers out of ETFs domiciled in the Republic of Ireland to passive funds managed in the UK. This is because after a long conversation with Vanguard (who were really helpful on this tricky subject) I discovered that as ETFs tend to be domiciled outside the UK, they are outside the remit of the FSCS to offer its full guarantee for money lost in stocks (due to bankruptcy etc, not falling stock prices, obviously).

    ETFs don't get FSCS protection regardless of where they are domiciled.   

    So, those of you who know a bit more about this than I do: was I right to move out of ETFs?

    Probably not if they were mainstream ETFs with physical replication and not synthetic replication.

    I note this issue of ETFs being outside the full FCSC scheme is rarely mentioned in decision-making on passive trackers, so perhaps I am getting the wrong end of the stick?

    If you are in the mainstream, it really makes little difference.   If you go off the mainstream then it can be more important.

    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • gorahgorah Forumite
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    Thanks for your reply, dunstonh. I will now start looking at the difference between physical and synthetic replication.
  • edited 4 May at 12:10PM
    coastlinecoastline Forumite
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    edited 4 May at 12:10PM
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