Vanguard FTSE 100 UCITS ETF GBP (VUKE)

AsifM068

Evening forum,

any thoughts about VUKE as a steady vehicle for income vs The City of London Investment Trust for example please?

Also with the Government's current move towards and significant in a bid to attract foreign investment (that's my understanding and I may be wrong...probably...), is now not the time to be investing in UK markets due to a weak pound - easy terms please if you can?

Thank you team

masonic

Well I certainly wouldn't describe it as "a steady vehicle". It's not particularly exposed to the UK economy, being composed of companies with significant operations abroad. It wouldn't give you very good diversification as your only holding. VHYL could be worth a look. Is there any particular reason why you are focusing on income rather than total return?

AsifM068

masonic said:

Well I certainly wouldn't describe it as "a steady vehicle". It's not particularly exposed to the UK economy, being composed of companies with significant operations abroad. It wouldn't give you very good diversification as your only holding. VHYL could be worth a look. Is there any particular reason why you are focusing on income rather than total return?

Thanks for your reply friend; re growth; you see I've been invested in the Global All Cap since June 2021 and I have not even broken even to date in a fund well considered and highly diversified globally. I just feel now, 6 years away from retirement, is the time to consider an income focused approach..maybe...I welcome your thoughts.

AsifM068

As an aside, if the UK interest rate reaches say 5%; then wouldn't people just sell their shares and just put their money into savings accounts; I would, for there would be minimum risk and 5% growth is good...? Am I missing / overlooking something in such a scenario?

masonic

AsifM068 said:

masonic said:

Well I certainly wouldn't describe it as "a steady vehicle". It's not particularly exposed to the UK economy, being composed of companies with significant operations abroad. It wouldn't give you very good diversification as your only holding. VHYL could be worth a look. Is there any particular reason why you are focusing on income rather than total return?

Thanks for your reply friend; re growth; you see I've been invested in the Global All Cap since June 2021 and I have not even broken even to date in a fund well considered and highly diversified globally. I just feel now, 6 years away from retirement, is the time to consider an income focused approach..maybe...I welcome your thoughts.

Investing in a fund like Vanguard Global All Cap is for the long term, an absolute minimum of 10 years, but preferably longer. There is no point judging it over a year or two. If you are 6 years away from retirement, then what happens to these investments when you retire? Will you want to sell them at that point, or keep them invested?

Here is the performance of the FTSE100 (dividends reinvested in red, without dividends reinvested in blue) between December 1999 and December 2009:

An income focused approach, where you are taking the income, would have left you 30% down over 10 years during this unfortunate time. Vanguard obviously wasn't around back then so Global All Cap can't be compared, but the FTSE World index did only marginally better.

So, you should consider the loss potential and risks associated with taking an income from an index where income is a significant proportion of the returns. Is it sustainable?

AsifM068 said:

As an aside, if the UK interest rate reaches say 5%; then wouldn't people just sell their shares and just put their money into savings accounts; I would, for there would be minimum risk and 5% growth is good...? Am I missing / overlooking something in such a scenario?

Interest rates have been above 5% in the past, so your theory is quite easy to test. When interest rates were above the yield of the FTSE 100, did this cause the index to fall until its yield was at or above savings rates?

AsifM068

I recall it was around March 2009 that the BOE cut the interest / base rate to around 0.5%; previous to that time I had enjoyed a saving rate of about 7% but I'm stuck on your question; I can see from the graphs that between Dec 02 and Dec 07 that the FTSE index was rising, indicating that people were still investing in the FTSE 100 whilst enjoying a relatively high savings base rate? If, probably, I'm wrong please explain it to me if you can - but if people were benefiting from such a high UK base rate at the time, I would think that they would have shunned the FTSE market but the graphs, to my mind, don't indicate that...bit confused to be honest...help

Second point / question if I may; If I invest in a trust or a fund with a dividend yield of 5% for example. At the end of the year lets say the share / unit price trades at / falls to a 5% discount to its NAV - this would mean a zero sum scenario? I would not gain anything; is this correct please?

masonic

You seem to be not factoring in the main reason people invest: share price growth. Dividends are just one part of investment returns.

Some investments pay no dividends at all, so by your reasoning above, there is no reason to hold them. Yet investors have seen the value of some of these shares double or triple in a short space of time.

AsifM068

Second point / question if I may; If I invest in a trust or a fund with a dividend yield of 5% for example. At the end of the year lets say the share / unit price trades at / falls to a 5% discount to its NAV - this would mean a zero sum scenario? I would not gain anything; is this correct please?

AsifM068

Second point / question if I may; If I invest in a trust or a fund with a dividend yield of 5% for example. At the end of the year lets say the share / unit price trades at / falls to a 5% discount to its NAV - this would mean a zero sum scenario? I would not gain anything; is this correct please?

In this scenario - I thought that if the price falls to a discount below a fund's NAV relative to the buying price, then that shows negative growth? And if it falls by 5%, as per my example, that would negate the 5% dividend yield I would have thought - is this correct please?

InvesterJones

AsifM068 said:

Evening forum,

any thoughts about VUKE as a steady vehicle for income vs The City of London Investment Trust for example please?

Also with the Government's current move towards and significant in a bid to attract foreign investment (that's my understanding and I may be wrong...probably...), is now not the time to be investing in UK markets due to a weak pound - easy terms please if you can?

Thank you team

Low pound means you've got less relatively to invest anywhere, at which point you still need to decide which is the best option going forwards. UK markets will be relatively better value than they were before so if going for value (which correlates with income) they're not bad from that perspective. However rather than a weak pound being the cause of their improved value, it's the government's actions which have led markets to believe the UK economy is going to perform (even) more poorly than before, thus they've moved their investments elsewhere and this has caused the pound and equities valuations to fall.

So you have to either decide the markets have the right idea - UK is not good to invest in, or they've had the wrong idea - UK is now a bargain to invest in, or the pragmatic: markets have the right idea and have already acted on it - UK is a less good place to invest in but prices have already fallen reflect that so it works out the same.

I think I'd wait for a bit more of a steady state before assuming the latter.

AsifM068 said:

Second point / question if I may; If I invest in a trust or a fund with a dividend yield of 5% for example. At the end of the year lets say the share / unit price trades at / falls to a 5% discount to its NAV - this would mean a zero sum scenario? I would not gain anything; is this correct please?

Only if the underlying assets of the fund don't change in value. If the assets (shares in companies, say) increase in value then despite the 5% discount to NAV (net asset value) you'll come out ahead in a year that gives 5% yield.

AsifM068

InvesterJones said:

AsifM068 said:

Evening forum,

any thoughts about VUKE as a steady vehicle for income vs The City of London Investment Trust for example please?

Also with the Government's current move towards and significant in a bid to attract foreign investment (that's my understanding and I may be wrong...probably...), is now not the time to be investing in UK markets due to a weak pound - easy terms please if you can?

Thank you team

Low pound means you've got less relatively to invest anywhere, at which point you still need to decide which is the best option going forwards. UK markets will be relatively better value than they were before so if going for value (which correlates with income) they're not bad from that perspective. However rather than a weak pound being the cause of their improved value, it's the government's actions which have led markets to believe the UK economy is going to perform (even) more poorly than before, thus they've moved their investments elsewhere and this has caused the pound and equities valuations to fall.

So you have to either decide the markets have the right idea - UK is not good to invest in, or they've had the wrong idea - UK is now a bargain to invest in, or the pragmatic: markets have the right idea and have already acted on it - UK is a less good place to invest in but prices have already fallen reflect that so it works out the same.

I think I'd wait for a bit more of a steady state before assuming the latter.

AsifM068 said:

Second point / question if I may; If I invest in a trust or a fund with a dividend yield of 5% for example. At the end of the year lets say the share / unit price trades at / falls to a 5% discount to its NAV - this would mean a zero sum scenario? I would not gain anything; is this correct please?

Only if the underlying assets of the fund don't change in value. If the assets (shares in companies, say) increase in value then despite the 5% discount to NAV (net asset value) you'll come out ahead in a year that gives 5% yield.

Thanks so much for this, coin dropped...nearly; if a fund is trading at a discount to a NAV does that not show negative growth?
If the assets increase in value, wouldn't the fund then be trading at a premium? - I thought the premium / discount to NAV figure  indicates positive or negative growth - is this not right?