Vanguard: funds or ETFs?

tebbins

1. Warren Buffett was talking to an audience of a. American and b. Lay/amateur/retail investors. The US is the most over-researched market (although there isn't much evidence of much more opportunity in less-researches markets, they are fairly efficient these days).
2. A fairly "compete" global tracker is Vanguard FTSE global all cap, which includes global large mid and small caps. Holding that on the Vanguard platform may not be cheapest way to hold it though, and other platforms such as iWeb would let you told it with no ongoing charge, just £100 to open the account and £5 per trade (unless it's a SIPP, DYOR), along with more or less everything you could buy on HL.

sebtomato

Thrugelmir said:

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. 

Do you mean in term of asset class or within shares?

Within stock/shares, I think having investments in many regions (US, UK, Europe, Asia), in many companies (large and small) is good enough diversification?

In term of having an entire portfolio in stocks, as opposed to other asset types, that's a different discussion.

sebtomato

GeoffTF said:

The Vanguard small cap fund tracks the MSCI index, whereas other Vanguard funds track the FTSE Russell indexes. That leads to duplication. A global tracker is much cheaper at 0.13% (either HSBC or 0.9*VEVE + 0.1*VFEM). iWeb is cheaper than Vanguard's platform for £500K.

True, and if you look at the composition of the VLS100 fund, there is duplication too.

For instance, S&P500, US equity and FTSE Developed World ex UK.
Or UK all shares and FTSE 250...

As long as duplication is considered when it comes to balancing the portfolio, doesn't matter too much.

I think many global trackers are made of underlying funds/ETFs with some overlaps, as opposed to made directly of shares of thousands of companies.

dunstonh

sebtomato said:

ColdIron said:

sebtomato said:

MX5huggy said:

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. 

Regarding the S&P500, I am just following Warren Buffet's advice. He said people are better off investing in an S&P500 index tracker as opposed to his fund,

It was advice for his wife and good advice if you are a US octogenarian with more money than you could possibly spend

Yes, I don't know the details, just found the story amusing. One the most successful investors of all time saying (or having someone related) that a passive fund is not bad.

A S&P500 tracker seems a good investment (and very cheap) as part of passive investment strategy anyway.

So, are you a US citizen subject to US taxation?  And do you use dollars as your primary currency?

Also, are you aware that Buffet doesn't actually follow that "advice".  He is a value investor.

dunstonh

sebtomato said:

I think many global trackers are made of underlying funds/ETFs with some overlaps, as opposed to made directly of shares of thousands of companies.

No. That is not the case.

A fund that is made up of underlying funds is a fund of funds.  Not a tracker.     It is also a managed fund not passive as the fund house has to pick the weightings it wants to be allocated to each fund.  it also increases the cost.

Thrugelmir

sebtomato said:

MX5huggy said:

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. 

Regarding the S&P500, I am just following Warren Buffet's advice. He said people are better off investing in an S&P500 index tracker as opposed to his fund, but maybe I need to look at something a bit broader indeed.

For the record BH is not a fund. Despite what many people think. WB and CM are simply figureheads over what is a sizable organisation. In total some 360,000 employees. Here's a link to it's trading companies.

https://www.berkshirehathaway.com/subs/sublinks.html

Warren Buffet's actually said that the average investor is no good at picking individual stocks, in essence they would be better in investing in the SP500 rather than BH. Of course he was addressing a US audience at the shareholders meeting. What never gets quoted is that 10% should be invested in US Treasury stocks.

In isolation a 90/10 portfolio denominated in US $ is not suitable for UK investors. 

sebtomato

dunstonh said:

A fund that is made up of underlying funds is a fund of funds.  Not a tracker.     It is also a managed fund not passive as the fund house has to pick the weightings it wants to be allocated to each fund.  it also increases the cost.

I agree: if the fund manager is deciding on the weightings, it's not completely passive. Someone is still making some decisions/priorities. That's why VLS100 is probably 0.12% more expensive than the underlying ETFs/funds.

However, do you know a fund or ETF that is a world "tracker"? Even at the UK level, how would you create such UK all shares fund? One share per listed company? Number of shares proportional to the market cap? In which case, someone is again making a decision to put more weight on large caps...

Of course, you can have FTSE100 trackers etc. but what's supposed to be the weight of those in a global portfolio?

sebtomato

Thrugelmir said:

sebtomato said:

MX5huggy said:

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. 

Regarding the S&P500, I am just following Warren Buffet's advice. He said people are better off investing in an S&P500 index tracker as opposed to his fund, but maybe I need to look at something a bit broader indeed.

For the record BH is not a fund. Despite what many people think. WB and CM are simply figureheads over what is a sizable organisation. In total some 360,000 employees. Here's a link to it's trading companies.

https://www.berkshirehathaway.com/subs/sublinks.html

Warren Buffet's actually said that the average investor is no good at picking individual stocks, in essence they would be better in investing in the SP500 rather than BH. Of course he was addressing a US audience at the shareholders meeting. What never gets quoted is that 10% should be invested in US Treasury stocks.

In isolation a 90/10 portfolio denominated in US $ is not suitable for UK investors. 

Yes, it's not strictly speaking a fund, it has employees too. However, is a major investor in Apple, and Apple employees are not employees of BH. Once BH starts investing in companies it doesn't control directly, in a range of sectors, it becomes an investment vehicle as opposed to just a "company".

I think Warren Buffet is famous for his investments in other companies, on "value" stocks rather than companies he controls at 100%. This makes him the ultimate "active fund manager", and any comparison to passive funds is interesting (as per the usual debate, active vs. passive investing).

tebbins

BH certainly started out as a normal company but I would regard it now as unique. De jure it remains a company traded on the NYSE, de facto you could argue it has become a hybrid investment trust, that also privately owns operating subsidiaries and keeps a certain amount of cash on hand, though we are led to believe the only operations BH has a say are those of the corporate headquarters in Omaha. I don't see where that debate gets you though, it's not just semantical, but you are talking about what labels do or do not apply to BH.

Buffett's cash pile has little to nothing to do with his general view of stock market prices, most of that cash has been accumulated from operating income and dividends rather than capital disposals, he is simply looking opportunities to deploy that capital efficiently.

GazzaBloom

Thrugelmir said:

In isolation a 90/10 portfolio denominated in US $ is not suitable for UK investors. 

Because of currency fluctuation risk?