Vanguard: funds or ETFs?

sebtomato

Hi,

I am planning to increase my investments on the Vanguard platform, and still not clear on the difference between funds and ETFs, particularly when it comes to cost.

I am just looking for the cheapest way to get some "funds", so should I just look at the ETF fee vs. the fund fee?

Any other considerations about transaction fees etc. as I am likely to make many purchases during the year. None will have to be timely, so happy for the instructions to take several days (as funds do).

dunstonh

I am planning to increase my investments on the Vanguard platform, and still not clear on the difference between funds and ETFs, particularly when it comes to cost.

That is because there isn't much difference in cost nowadays.   The cost differences were bigger back in the days when investment pricing was bundled on retail investments.

I am just looking for the cheapest way to get some "funds", so should I just look at the ETF fee vs. the fund fee?

Most people buy investments to make money. Not to save money on charges.   It is unlikely that using Vanguard platform to buy ETFs is the cheapest option.

Compare the OCF on UT/OEICs with the TER on ETFs.   you can largely disregard transaction charges.  Although incidental charges should be noted.

Thrugelmir

ETF's as actively traded instruments can suffer from volatility, illiquidity and trade at a premium/discount to underlying value. A similar but very different entity to funds. 

GeoffTF

sebtomato said:

Hi,

I am planning to increase my investments on the Vanguard platform, and still not clear on the difference between funds and ETFs, particularly when it comes to cost.

I am just looking for the cheapest way to get some "funds", so should I just look at the ETF fee vs. the fund fee?

Any other considerations about transaction fees etc. as I am likely to make many purchases during the year. None will have to be timely, so happy for the instructions to take several days (as funds do).

Vanguard is not very helpful here:

https://www.vanguardinvestor.co.uk/articles/latest-thoughts/investing-success/how-to-build-a-portfolio-part-five

Here is a more helpful article:

https://www.blackrock.com/au/intermediaries/ishares/authorized-participants-and-market-makers

Open ended funds (OEICs and unit trusts) are usually more idiot proof. Vanguard ETFs are sometimes cheaper than the corresponding OEICs, and there is sometimes no direct Vanguard OEIC equivalent. Most platforms charge a swinging percentage platform fee for holding open ended funds. Vanguard's 0.15% is capped at £375.

sebtomato

GeoffTF said:

Vanguard ETFs are sometimes cheaper than the corresponding OEICs, and there is sometimes no direct Vanguard OEIC equivalent. Most platforms charge a swinging percentage platform fee for holding open ended funds. Vanguard's 0.15% is capped at £375.

I think Vanguard will charge me 0.15% regardless of the my general account being invested in funds or ETFs.

sebtomato

dunstonh said:

Most people buy investments to make money. Not to save money on charges.   It is unlikely that using Vanguard platform to buy ETFs is the cheapest option.

I am mainly doing passive investing, but on quite large amounts of money, between my ISA, my pension and my general account.

Therefore, the fees are starling to make quite a difference, whether it's the fund fees or the platform fees.

With Vanguard, the maximum charge is £375 per year in platform fee (capped), so if you have large investments, it starts to get interesting.

If I can copy the structure of VLS100, with a few low fees ETFs or funds, I can probably achieve 0.10% of "fund" fees, instead of paying 0.22% for VLS (with of course the need for manual rebalancing). 0.12% difference on large amounts can make a difference.

dunstonh

If I can copy the structure of VLS100, with a few low fees ETFs or funds, I can probably achieve 0.10% of "fund" fees, instead of paying 0.22% for VLS (with of course the need for manual rebalancing). 0.12% difference on large amounts can make a difference.

Although the counter to that is that Vanguard don't have the best trackers in every area.  So you are going to lose in some sectors by restricting yourself to Vanguard.  And VLS100 has managed decisions that are not that desirable to many investors.  Home bias, for example.   You need to ask yourself why wouldnt you just buy a global tracker instead of VLS100.

sebtomato

dunstonh said:

If I can copy the structure of VLS100, with a few low fees ETFs or funds, I can probably achieve 0.10% of "fund" fees, instead of paying 0.22% for VLS (with of course the need for manual rebalancing). 0.12% difference on large amounts can make a difference.

Although the counter to that is that Vanguard don't have the best trackers in every area.  So you are going to lose in some sectors by restricting yourself to Vanguard.  And VLS100 has managed decisions that are not that desirable to many investors.  Home bias, for example.   You need to ask yourself why wouldnt you just buy a global tracker instead of VLS100.

Because global trackers are usually more expensive, at 0.30% or more, and it's not an exact science anyway.

VLS 100 is deciding to have the UK at 20% of the fund, the USA at 49% of the fund etc. It's all subjective, no right or wrong. VLS might do better than other trackers some years, and worse other time.

At the end of the day, it's all about limiting exposure risk by investing in many companies (large and small caps), and many regions.

I could do my own VLS, using my own "formula".

For instance:

USA - 47% (S&P 500 ETF, 0.07% fee)

UK all share - 20% (fund)

Europe (ex. UK) - 11% (ETF)

Emerging (China etc.) - 5% (ETF)

Small cap - 7% (fund)

Japan - 6% (ETF)

Asia excluding Japan (Australia, South Korea) - 3% (ETF)

By adding the fees for the above ETFs or funds on Vanguard, I get to about 0.10%.

With £500,000 invested with Vanguard, platform fee would be 0.075%, so the total fees would be 0.175%. I think that's difficult to beat.

dunstonh

Because global trackers are usually more expensive, at 0.30% or more, and it's not an exact science anyway.

0.30%+ would suggest you are looking at the wrong share class.  Possibly the old retail share class rather than the clean share class.  e..g HSBC All world is 0.13%.  Plenty of others in that ballpark.

Thrugelmir

sebtomato said:

dunstonh said:

If I can copy the structure of VLS100, with a few low fees ETFs or funds, I can probably achieve 0.10% of "fund" fees, instead of paying 0.22% for VLS (with of course the need for manual rebalancing). 0.12% difference on large amounts can make a difference.

Although the counter to that is that Vanguard don't have the best trackers in every area.  So you are going to lose in some sectors by restricting yourself to Vanguard.  And VLS100 has managed decisions that are not that desirable to many investors.  Home bias, for example.   You need to ask yourself why wouldnt you just buy a global tracker instead of VLS100.

At the end of the day, it's all about limiting exposure risk by investing in many companies (large and small caps), and many regions.

That in itself does not create a diversified portfolio though. A common misnomer. 

MX5huggy

Be careful the S&P 500 is not the US stock market, Vanguard offer a US fund the with 4074 stocks vs 508 in the S&P. Look at the history of Tesla not joining the S&P until it was massive (in value) because it did not meet the criteria of being profitable. 

You can cover the Developed World cheaply using VEVE (0.12), or using the alternative offered above just add a bit of emerging market if you want. 

Then holding ETF’s on Fidelity or HL has just a fee of £45 pa but there are trading fees which you don’t have on Vanguard.