Overweight UK global fund that is cheaper than VLS100

aroominyork

Maybe there is no solution to this, but just to clarify: I want geographic balance across my portfolio investments roughly equivalent to 60% Fidelity Index World and 40% VLS100. I want to see if I can do that without paying about double the fees for VLS100 which most other index funds charge.

I kind of get that Vanguard charge 0.22% for VLS 20, 40, 60 and 80 because they give you the convenience of not having to manually rebalance your equities and bonds, but for a pure equity index fund 0.22% is expensive. I have about £80k in VLS100 at the moment so finding a cheaper way to own passive funds (and preferably only holding two funds) would be worthwhile.

Linton

If my maths is right 60% Fidelity Index and 40 % VLS100 is about 11.5% UK.  This could be achieved by approx 92.6% Fidelity Index World and 7.4% your favourite FTSE100 tracker.

aroominyork

Linton said:

If my maths is right 60% Fidelity Index and 40 % VLS100 is about 11.5% UK.  This could be achieved by approx 92.6% Fidelity Index World and 7.4% your favourite FTSE100 tracker.

Maybe that's as close as I can get. It fixes the UK issue though means I end up with more in N America and less in Emerging Markets than I want - and that breaks the "max 40% in one region" rule which I picked up from you!

Edit: with three funds I am pretty much on the button: 28% HSBC FTSE All World Index, 64% Fidelity Index World, 8% UK FTSE100/All Share Index. Maybe two into three just doesn't go!

Linton

aroominyork said:

Linton said:

If my maths is right 60% Fidelity Index and 40 % VLS100 is about 11.5% UK.  This could be achieved by approx 92.6% Fidelity Index World and 7.4% your favourite FTSE100 tracker.

Maybe that's as close as I can get. It fixes the UK issue though means I end up with more in N America and less in Emerging Markets than I want - and that breaks the "max 40% in one region" rule which I picked up from you!

I have separate funds for large and small companies in each geography.  It makes it much easier to get specific allocations.  Setting up multifactor allocations is impossible if you base your portfolio on a large global index core.

redpete

Linton said:

aroominyork said:

Linton said:

If my maths is right 60% Fidelity Index and 40 % VLS100 is about 11.5% UK.  This could be achieved by approx 92.6% Fidelity Index World and 7.4% your favourite FTSE100 tracker.

Maybe that's as close as I can get. It fixes the UK issue though means I end up with more in N America and less in Emerging Markets than I want - and that breaks the "max 40% in one region" rule which I picked up from you!

I have separate funds for large and small companies in each geography.  It makes it much easier to get specific allocations.  Setting up multifactor allocations is impossible if you base your portfolio on a large global index core.

Difficult but not impossible (but it is impossible if you also impose a limit on 2 or 3 funds in total).  I use VLS100 as a core ((just over 50% of the total) and have around 8 others to get to the overall balance I want.  In truth I could get close enough with far fewer, or even just choose one global equity + bond tracker, but I like playing with spreadsheets and I'm happy to put the effort into working out the initial allocation, monthly allocation and periodic rebalancing. 

JohnWinder

Linton said:

2) Why do you want a cheaper index fund?  What is important is that the fund follows the index.  If it does that its charges are irrelevent.

I think it's because charges reduce your overall return. So, if you have two products providing the same service, you'd choose the less expensive, a bit like buying anything else I suppose. That would be what makes the charges relevant, I'd say. Now of course 5 basis points is perhaps here nor there over a shortish period with the sorts of money we're probably talking about here, but even 5 basis points can be evaluated for its impact on returns.

NedS

JohnWinder said:

Linton said:

2) Why do you want a cheaper index fund?  What is important is that the fund follows the index.  If it does that its charges are irrelevent.

I think it's because charges reduce your overall return. So, if you have two products providing the same service, you'd choose the less expensive, a bit like buying anything else I suppose. That would be what makes the charges relevant, I'd say. Now of course 5 basis points is perhaps here nor there over a shortish period with the sorts of money we're probably talking about here, but even 5 basis points can be evaluated for its impact on returns.

I think the point @Linton was making is that if two funds both track an index, the index rises by 10% and the two funds also both rise by 10%, it's irrelevant that one fund has a charge of 0.1% and the other a change of 0.6% as both funds have done what they intended to do and provided you with a return the same as the index.

JohnWinder

Yes, that's probably it. I just couldn't see that the cost is irrelevant to choosing one thing over another.

aroominyork

NedS said:

JohnWinder said:

Linton said:

2) Why do you want a cheaper index fund?  What is important is that the fund follows the index.  If it does that its charges are irrelevent.

I think it's because charges reduce your overall return. So, if you have two products providing the same service, you'd choose the less expensive, a bit like buying anything else I suppose. That would be what makes the charges relevant, I'd say. Now of course 5 basis points is perhaps here nor there over a shortish period with the sorts of money we're probably talking about here, but even 5 basis points can be evaluated for its impact on returns.

I think the point @Linton was making is that if two funds both track an index, the index rises by 10% and the two funds also both rise by 10%, it's irrelevant that one fund has a charge of 0.1% and the other a change of 0.6% as both funds have done what they intended to do and provided you with a return the same as the index.

Linton gave a thumbs up to your comment so I guess that's what he meant, but generally i) tracking the index and ii) as cheaply as possible, are seen as two separate components of an approach to investing. If you look at Jack Bogle's interviews (and they are great to watch) he generally splits the discussion into those two elements. A little ironic, then, that it's Vanguard I want to get away from. If I can get the same index for 0.1% instead of 0.22%, that saves me £96 pa which adds up over the years.

JohnWinder

I think he's saying that £96/year is irrelevant.