L&G International vs HSBC Ftse all world fund, vs any low cost vanguard tracker fund suggestion

GeoffTF

Deleted_User said:

GeoffTF said:

Vanguard charges a platform fee of 0.15% (capped at £375), not 0.35%. iWeb charges just £5 per trade after the first year

Thanks for the correction! My mistake re: vanguard and I've corrected the post. But iweb charges £5 per trade straight away from account opening (not after the first year).

Yes, that is right. I was not clear. In the first year, iWeb charges £5 per trade and a £100 opening fee. After the first year, it charges just £5 per trade.

ColdIron

GeoffTF said:

Deleted_User said:

GeoffTF said:

Vanguard charges a platform fee of 0.15% (capped at £375), not 0.35%. iWeb charges just £5 per trade after the first year

Thanks for the correction! My mistake re: vanguard and I've corrected the post. But iweb charges £5 per trade straight away from account opening (not after the first year).

Yes, that is right. I was not clear. In the first year, Vanguard charges £5 per trade and a £100 opening fee. After the first year, it charges just £5 per trade.

IWeb     

GeoffTF

ColdIron said:

GeoffTF said:

Deleted_User said:

GeoffTF said:

Vanguard charges a platform fee of 0.15% (capped at £375), not 0.35%. iWeb charges just £5 per trade after the first year

Thanks for the correction! My mistake re: vanguard and I've corrected the post. But iweb charges £5 per trade straight away from account opening (not after the first year).

Yes, that is right. I was not clear. In the first year, Vanguard charges £5 per trade and a £100 opening fee. After the first year, it charges just £5 per trade.

IWeb     

Yes, of course. Sorry about that. Fixed it.

mears1

 Jimster, thank you for your detailed reply which I am not sure about.  This is a  very helpful and informative forum! I’ve not been a member long enough to quote…so have copied your reply in italics……..Would you mind explaining some of my queries, as I am trying to understand the principles? I have visited the suggested monevator site as suggested.

HSBC:
2015 - HSBC returned 2.9% vs 4.0% for the benchmark (-1.1% tracking error)
2016 - HSBC returned 29.2% vs 29.6% benchmark (-0.4% tracking error)
2017 - HSBC returned 13.0% vs 13.8% benchmark (-0.8% tracking error)
2018 - HSBC -4.8%  vs 3.4% benchmark (-1.4% tracking error)
2019: HSBC 22.7% vs  22.3% benchmark (+0.5% tracking error)
2020: HSBC 12.6% vs 13.0% benchmark (-0.4% tracking error)

Historically, HSBC underperformed the tracked benchmark by an average 0.68% each year.

Vanguard:
2017: Vanguard returned 13.0% vs 13.3% for the benchmark (-0.3% tracking error)
2018: Vanguard -4.5% vs -4.2% benchmark (-0.3% tracking error)
2019: Vanguard 21.5% vs 21.9% (-0.4% tracking error)
2020: Vanguard 12.5% vs 12.9% (-0.4% tracking error)

Historically, Vanguard underperformed the tracked benchmark by an average 0.35% each year.

So HSBC was in fact a bit more "expensive" although you would still have done better overall by holding HSBC since its underlying benchmark has slightly outperformed Vanguard's underlying benchark. And the differences are pretty small: you'd have done far, far better with either than holding cash, also this is just what happened in the past, future years may be totally different (for instance notice that during the big gain in 2019 HSBC randonly outperformed its benchmark whereas Vanguard underperformed!)……….”

 1.For the best performance, should the tracking error be a positive or negative number and be as near as zero?

2. How did you calculate the following?   You wrote“Historically, HSBC underperformed the tracked benchmark by an average 0.68% each year.”….

 3 Can you explain what this means? You wrote “So HSBC was in fact a bit more "expensive" although you would still have done better overall by holding HSBC since its underlying benchmark has slightly outperformed Vanguard's underlying benchmark.”  

 

[Deleted User]

mears1 said:

 1.For the best performance, should the tracking error be a positive or negative number and be as near as zero?

The "tracking error" tells you how closely the fund you've invested in is expected to follow the performance of the underlying benchmark each year. Ideally the error would be as close as possible to "0" (which would mean the fund EXACTLY follows the underlying benchmark) but this never happens because of the costs and complexity of managing a fund. It's quoted as a percentage. So a 1% tracking error means if the benchmark returns 10% over a year you'll usually be expected to get up to 1% less (or occasionally, more) than 10%. This is only an expectation and sometimes the tracking error can be bigger than 1%. 

Read this for more details: https://monevator.com/tracking-error-–-a-hidden-cost/

mears1 said:

2. How did you calculate the following?   You wrote“Historically, HSBC underperformed the tracked benchmark by an average 0.68% each year.”….

I just added up the tracking error each year and divided by the number of years:

Step 1: Add together the total tracking error across all the years so -1.1 -0.4 - 0.8 -1.4 + 0.5 - 0.4
Step 2: divide the answer to step 1 by the total number of years (5).
(I've set out these steps in a hurry so might have made a mistake with the numbers but it's just so you get the idea).

mears1 said:

  3 Can you explain what this means? You wrote “So HSBC was in fact a bit more "expensive" although you would still have done better overall by holding HSBC since its underlying benchmark has slightly outperformed Vanguard's underlying benchmark.”  

HSBC was tracking a benchmark that did better than the different benchmark that Vanguard was tracking. However, Vanguard tracked their benchmark more closely than HSBC. If both underlying benchmarks had performed the same, you'd have made slightly more profit with Vanguard (if the tracking errors remained the same, which they probably wouldn't).

SIDE COMMENT RE: STOCK LENDING

One other point I myself have just realised - HSBC don't engage in "stock lending" activities for this fund at the moment, but they could in future and if they were to, they would only give you 80% of the profits (even thoug you're taking 100% of the risk...) whereas Vanguard give you 100% of the profits (and I believe they do engage in stock lending although haven't checked for sure with this fund) and which would give you a slightly better return, albeit with a slightly higher risk.

mears1

WOW [Deleted User] !! Thanks for those amazing explanations. Bless you.

DireEmblem

Deleted_User said:

SIDE COMMENT RE: STOCK LENDING

One other point I myself have just realised - HSBC don't engage in "stock lending" activities for this fund at the moment, but they could in future and if they were to, they would only give you 80% of the profits (even thoug you're taking 100% of the risk...) whereas Vanguard give you 100% of the profits (and I believe they do engage in stock lending although haven't checked for sure with this fund) and which would give you a slightly better return, albeit with a slightly higher risk.

It’s probably noting the word ‘slight’ any stock lending is or should be protected by collateral but this does not 100% mitigate the risks but most of it.  The collateral positions should be reviewed daily.

I don’t see a reason why HSBC would only give back 80%, they are only managing the funds, their costs of facilitating can’t be that high surely.

Alexland

DireEmblem said:

It’s probably noting the word ‘slight’ any stock lending is or should be protected by collateral but this does not 100% mitigate the risks but most of it.  The collateral positions should be reviewed daily.

According to Blackrock they have only ever had 3 lending defaults since 1981 and each time they were able to repurchase the secuirty on loan using the collateral.

https://www.blackrock.com/institutions/en-gb/solutions/securities-lending

DireEmblem said:

I don’t see a reason why HSBC would only give back 80%, they are only managing the funds, their costs of facilitating can’t be that high surely.

I expect 80% investor share is better than average. I do sympathise that the asset manager is incurring costs in such lending programmes that are in addition to their normal fund management costs. If they were made to build such costs into their OCF then it wouldn't be fair as fund managers who can't be bothered would look like they are more cost efficient even though they would not generate the additional return.

GeoffTF

Alexland said:

DireEmblem said:

It’s probably noting the word ‘slight’ any stock lending is or should be protected by collateral but this does not 100% mitigate the risks but most of it.  The collateral positions should be reviewed daily.

According to Blackrock they have only ever had 3 lending defaults since 1981 and each time they were able to repurchase the secuirty on loan using the collateral.

https://www.blackrock.com/institutions/en-gb/solutions/securities-lending

DireEmblem said:

I don’t see a reason why HSBC would only give back 80%, they are only managing the funds, their costs of facilitating can’t be that high surely.

I expect 80% investor share is better than average. I do sympathise that the asset manager is incurring costs in such lending programmes that are in addition to their normal fund management costs. If they were made to build such costs into their OCF then it wouldn't be fair as fund managers who can't be bothered would look like they are more cost efficient even though they would not generate the additional return.

They should not need to build in any extra costs to lend stock. The stock lending should be profitable, not loss making. If there is a loss, the fund takes the hit anyway. Vanguard does it.

Alexland

GeoffTF said:

They should not need to build in any extra costs to lend stock. The stock lending should be profitable, not loss making. If there is a loss, the fund takes the hit anyway. Vanguard does it.

Yes it is profitable but it still costs money to operate which is why the asset managers tend to keep a percentage of the profit.