Difference between Passive Index ETF's and funds for a buy and hold retail investor

MX5huggy

Vanguard has the option of paying no purchase fee on its ETF’s on its platform if you accept the once a day dealing price (£7.50 otherwise). The other point to note you can’t but fractions of ETF shares compared with you can buy fractions of fund units, so with funds all your money is invested straight away, with for example buying VEVE monthly using £100 per month month 1 you buy 1 unit at £67 ish then month 2 you’ll still only buy 1 unit but have £66 not invested month 3 you would buy 2 units. 

wmb194

Including VEVE, lots of Vanguard's ETFs are available on Freetrade with its basic, free account.

masonic

MX5huggy said:

Vanguard has the option of paying no purchase fee on its ETF’s on its platform if you accept the once a day dealing price (£7.50 otherwise). The other point to note you can’t but fractions of ETF shares compared with you can buy fractions of fund units, so with funds all your money is invested straight away, with for example buying VEVE monthly using £100 per month month 1 you buy 1 unit at £67 ish then month 2 you’ll still only buy 1 unit but have £66 not invested month 3 you would buy 2 units. 

Fractional ETF shares are available at some brokers, such as Freetrade mentioned above and Trading212, but not any mainstream investment platforms such as HL.

AndyTh_2

masonic said:

MX5huggy said:

Vanguard has the option of paying no purchase fee on its ETF’s on its platform if you accept the once a day dealing price (£7.50 otherwise). The other point to note you can’t but fractions of ETF shares compared with you can buy fractions of fund units, so with funds all your money is invested straight away, with for example buying VEVE monthly using £100 per month month 1 you buy 1 unit at £67 ish then month 2 you’ll still only buy 1 unit but have £66 not invested month 3 you would buy 2 units. 

Fractional ETF shares are available at some brokers, such as Freetrade mentioned above and Trading212, but not any mainstream investment platforms such as HL.

and also fractional ETF shares are only a subset of the broker's available ETFs as well. You might find the ETF you want to purchase isn't one that supports it, so it's best checking first.

John464

christophercharles said:

So why do people still invest into an ETF? what am I missing?

I only intend to use the Vanguard and Hargreaves Lansdown platforms

Grateful for any advice

I think what you are missing is competative fees.
I hold Vanguard ETFs on iweb with no platform fees and only £5 to trade.
Wheras HL fees are legendary.
I really like Vanguard, most of my money is in Vanguard ETFs.  But I have to say Vanguard platform fees are not good either.
Presumably because they don't want to discourage other platforms from holding their funds.  Rather like manufacturers own websites don't want to undercut retailers otherwise the retailers won't stock their products.  So buying direct from the manufacturer can sometimes be more expensive.

masonic

John464 said:

christophercharles said:

So why do people still invest into an ETF? what am I missing?

I only intend to use the Vanguard and Hargreaves Lansdown platforms

Grateful for any advice

I think what you are missing is competative fees.
I hold Vanguard ETFs on iweb with no platform fees and only £5 to trade.
Wheras HL fees are legendary.
I really like Vanguard, but I have to say their platform fees are not good either.
Presumably because they don't want to discourage other platforms from holding their funds.  Rather like manufacturers own websites don't want to undercut retailers otherwise the retailers won't stock their products.  So buying direct from the manufacturer can sometimes be more expensive.

iWeb charges exactly the same for funds and ETFs, both to hold and trade. There is no reason to favour Vanguard ETFs vs Vanguard OEICs at iWeb.

John464

masonic said:

John464 said:

christophercharles said:

So why do people still invest into an ETF? what am I missing?

I only intend to use the Vanguard and Hargreaves Lansdown platforms

Grateful for any advice

I think what you are missing is competative fees.
I hold Vanguard ETFs on iweb with no platform fees and only £5 to trade.
Wheras HL fees are legendary.
I really like Vanguard, but I have to say their platform fees are not good either.
Presumably because they don't want to discourage other platforms from holding their funds.  Rather like manufacturers own websites don't want to undercut retailers otherwise the retailers won't stock their products.  So buying direct from the manufacturer can sometimes be more expensive.

iWeb charges exactly the same for funds and ETFs, both to hold and trade. There is no reason to favour Vanguard ETFs vs Vanguard OEICs at iWeb.

I transferred the ETFs into iweb from x-o.
I'm very happy with x-o and still have half my money with them.  But after reading a thread on here, I got the wind up about having all my eggs in one basket and transferred half to iweb.  Probably unnecessary, but it gave me peace of mind at the time.
Some are unwrapped so I couldn't sell them without being clobbered with CGT
But some are in my ISA and I don't know whether its worth selling the ETFs to buy funds?

masonic

John464 said:

masonic said:

John464 said:

christophercharles said:

So why do people still invest into an ETF? what am I missing?

I only intend to use the Vanguard and Hargreaves Lansdown platforms

Grateful for any advice

I think what you are missing is competative fees.
I hold Vanguard ETFs on iweb with no platform fees and only £5 to trade.
Wheras HL fees are legendary.
I really like Vanguard, but I have to say their platform fees are not good either.
Presumably because they don't want to discourage other platforms from holding their funds.  Rather like manufacturers own websites don't want to undercut retailers otherwise the retailers won't stock their products.  So buying direct from the manufacturer can sometimes be more expensive.

iWeb charges exactly the same for funds and ETFs, both to hold and trade. There is no reason to favour Vanguard ETFs vs Vanguard OEICs at iWeb.

I transferred the ETFs into iweb from x-o.
I'm very happy with x-o and still have half my money with them.  But after reading a thread on here, I got the wind up about having all my eggs in one basket and transferred half to iweb.  Probably unnecessary, but it gave me peace of mind at the time.
Some are unwrapped so I couldn't sell them without being clobbered with CGT
But some are in my ISA and I don't know whether its worth selling the ETFs to buy funds?

Jarvis X-O is a sustainable and successful broker with a long history. As you say, probably unnecessary, but what's done is done and you pay no more after the iWeb account opening fee to split your assets.

Unless you have a compelling reason to switch (i.e. considerably lower management charges), then there's little advantage to switching. ETFs don't have FSCS compensation at the fund level, but providing you are using ETFs from a major investment house like Vanguard or Blackrock/iShares, then it is platform failure where FSCS compensation becomes relevant, and that applies equally for any client assets held by the firm.

christophercharles

Just to improve my understanding, for arguments sake, i've compared 2 similar index investments on Vanguard for the FTSE 100: an ETF and Index fund. (Though one is distributing and one is accumulation (which is the type I choose for buy and hold). In terms of fees for a £1000 investment the funds are the winner?: (from thier website)

Vanguard FTSE 100 UCITS ETF - (GBP) Distributing

Ongoing Costs 0.09%, Transaction Costs 0.03% One-Off Costs 0.02% Incidental Costs 0.00% Account Fee 0.15%

Total Costs 0.29% = £2.90/year + £7.50 entry fee and £7.50 exit fee. So if bought, held and sold for 1 year then its £15 + £2.90 = £17.90

Vanguard FTSE 100 Index Unit Trust - GBP Acc

Ongoing Costs 0.06% Transaction Costs 0.00% One-Off Costs Incidental Costs 0.00% Account Fee 0.15%

Total Costs 0.27% = £2.70, So if bought, held and sold for 1 year then it’s only £2.70

If it is just down to ETF Vs Fund platform fees in my mind this would make index funds a clear winner?

On a seperate note, If you dont mind answering. If you do invest in an Index ETF please can i ask why you chose that ETF compared to a Fund which would track the same Index?

Thank you

masonic

christophercharles said:

Just to improve my understanding, for arguments sake, i've compared 2 similar index investments on Vanguard for the FTSE 100: an ETF and Index fund. (Though one is distributing and one is accumulation (which is the type I choose for buy and hold). In terms of fees for a £1000 investment the funds are the winner?: (from thier website)

Vanguard FTSE 100 UCITS ETF - (GBP) Distributing

Ongoing Costs 0.09%, Transaction Costs 0.03% One-Off Costs 0.02% Incidental Costs 0.00% Account Fee 0.15%

Total Costs 0.29% = £2.90/year + £7.50 entry fee and £7.50 exit fee. So if bought, held and sold for 1 year then its £15 + £2.90 = £17.90

Vanguard FTSE 100 Index Unit Trust - GBP Acc

Ongoing Costs 0.06% Transaction Costs 0.00% One-Off Costs Incidental Costs 0.00% Account Fee 0.15%

Total Costs 0.27% = £2.70, So if bought, held and sold for 1 year then it’s only £2.70

If it is just down to ETF Vs Fund platform fees in my mind this would make index funds a clear winner?

You don't have to pay the £7.50 if you use Vanguard's bulk dealing service, so the comparison is £2.90 vs £2.10 (your calculation for the fund is wrong 0.15+0.06 = 0.21%). But you aren't going to hold for just one year. Over 10 years the cost would be £24.50 vs £21.00. That's if held at Vanguard.

If you are only investing £1000 then the costs are small and it makes little difference. The difference in performance of two equivalent funds could be more than £3.50/£1000 over 10 years.

christophercharles said:

On a seperate note, If you dont mind answering. If you do invest in an Index ETF please can i ask why you chose that ETF compared to a Fund which would track the same Index?

Thank you

I currently hold a Lifetime ISA with about £60k in it at AJ Bell. The platform fee would be 0.25% (£150) on the whole lot if I held funds. As I hold only ETFs, I pay £42 per year. The ETF fund fees work out about 0.02% (£12) more expensive per year. I also pay a total of £6 per year in regular investing fees when I top up annually (I wouldn't need to pay this if using funds). I'm therefore better off by £90 per year by using ETFs rather than funds. If Vanguard offered LISAs, which they don't, I'd still be better off by £30 pa at AJ Bell using ETFs than funds at Vanguard. The saving will get larger as I invest more, and hopefully see some growth return to my investments.

Very similar story for my SIPP.

My S&S ISA has a flat fee structure, so I pay the same platform fee whatever I hold, but that's where all of my active investments are held. I have a fairly strong preference for Investment Trusts (though I hold a few funds including one index fund).