Switching from active to passive funds?

AsifM068

Hi all,

I have in the region of 160K accumulated over 30 or so years with my Royal London ISA which comprises of the following 3 actively managed equity funds; RL London UK Growth Trust A, RL Sustainable Leaders Trust A and RL European Growth Trust A - the OCF is 1.26%.

I am thinking of transferring this ISA to my Vanguard ISA which consists of the passive index tracker, FTSE Global All Cap Index Fund - OCF 0.23%. ( I currently have 11K in this ISA started in June '21)

My investment window will be another 10 years at least for retirement.

What are your thoughts please?

masonic

You would be better off transferring to a flat fee provider given the amount. You could still hold the Vanguard fund you propose at a cheaper provider. It looks like this will represent a substantial change in asset allocation, so are you happy with having significantly less in the UK, significantly more in the USA, etc?

pip895

Should save quite a bit in fees but you are also effectively transferring from UK & Europe to the US which makes up 60 or so % of the global fund.  

The US has outperformed in the last 10 years but valuations there are now very high compared to UK & Europe.  If you want to go passive then personally I would split the transferred funds between the FTSE global fund and a UK FTSE 250 tracker and a European tracker.

Billycock

Confusing, you currently have 2 threads on the forum.
They're contradicting. Your other thread quotes you already have the 160k invested in your Vanguard FTSE GAC, you also give a retirement window of 7 years in the other thread.

Billycock

From your other thread 

Thank you all for your advice, it is very much appreciated. 

All options are still on the table and as referred to I have around 7 years (I will be 53 in October '21) before retirement when my Civil Service Defined Benefit Pension (worth 10K p/a plus a 26K lump sum payment) kicks in. 

I have invested 160K at the moment with Vanguard's FTSE Global All Cap index tracker fund and have another 50K in Premium Bonds for emergencies, liquidity and as a hedge.

Maybe the Vanguard fund, which I intend to leave alone until retirement, will suffice and I can go down the draw down route when 60? 

AsifM068

masonic said:

You would be better off transferring to a flat fee provider given the amount. You could still hold the Vanguard fund you propose at a cheaper provider. It looks like this will represent a substantial change in asset allocation, so are you happy with having significantly less in the UK, significantly more in the USA, etc?

Thanks for this Masonic...a USA heavy asset weighting within a global index is OK with me...I hope! 

AsifM068

Billycock said:

From your other thread 

Thank you all for your advice, it is very much appreciated. 

All options are still on the table and as referred to I have around 7 years (I will be 53 in October '21) before retirement when my Civil Service Defined Benefit Pension (worth 10K p/a plus a 26K lump sum payment) kicks in. 

I have invested 160K at the moment with Vanguard's FTSE Global All Cap index tracker fund and have another 50K in Premium Bonds for emergencies, liquidity and as a hedge.

Maybe the Vanguard fund, which I intend to leave alone until retirement, will suffice and I can go down the draw down route when 60? 

Billycock said:

From your other thread 

Thank you all for your advice, it is very much appreciated. 

All options are still on the table and as referred to I have around 7 years (I will be 53 in October '21) before retirement when my Civil Service Defined Benefit Pension (worth 10K p/a plus a 26K lump sum payment) kicks in. 

I have invested 160K at the moment with Vanguard's FTSE Global All Cap index tracker fund and have another 50K in Premium Bonds for emergencies, liquidity and as a hedge.

Maybe the Vanguard fund, which I intend to leave alone until retirement, will suffice and I can go down the draw down route when 60? 

Sorry for the confusion, let us assume the 160K is tied up with Royal London active funds inder an ISA. Would you transfer the ISA to the Vanguard global passive index/tracker fund with the much lower OCF? 

AsifM068

pip895 said:

Should save quite a bit in fees but you are also effectively transferring from UK & Europe to the US which makes up 60 or so % of the global fund.  

The US has outperformed in the last 10 years but valuations there are now very high compared to UK & Europe.  If you want to go passive then personally I would split the transferred funds between the FTSE global fund and a UK FTSE 250 tracker and a European tracker.

Hi pip895, thank you for your thoughts.

Question; would the global tracker already cover the UK FTSE 250 and European market?

pip895

AsifM068 said:

Hi pip895, thank you for your thoughts.

Question; would the global tracker already cover the UK FTSE 250 and European market?

In theory the global fund covers everything of course.  You have been overweight UK & Europe with those funds and are now proposing swapping over to a non overweight position.  My feeling is that you are essentially selling low and buying high by swapping UK + Europe for the USA.   If you are happy with valuations in the USA and think it will continue to outperform then fine.- go for the tracker or if you are really sure then why not go for the S&P 500 - you can get that even cheaper!

AsifM068

Its the OCF of 1.2% with the UK and European active funds that are driving the swap to the global tracker's OCF which is only 0.23%.

Is this flawed thinking as to be fair the active funds which have been invested for over 30 years, appear to be doing quite well of late?

pip895

Asset allocation can have a far greater effect on returns than costs.  I would start by comparing your existing funds to trackers covering similar markets to see if those costs are in any way justified.  

Even if the active funds do appear better I would still be tempted to look for alternatives with lower costs as those do look particularly expensive.  There are other platforms you could transfer to apart from vanguard if necessary.