Advice on tracker funds

pauper79

Hello. I recently moved an old workplace pension to a SIPP. I would like to invest into low cost equity tracker funds. Not keen on a global tracker due to high US exposure. I also prefer well-established UK domiciled funds and physical replication where possible (although I have made some exceptions).

I've identified seven funds to invest into. They all seem to be available through Halifax, which is my SIPP provider. I would welcome a sanity check from people here in case I am missing anything obvious. I am happy with the investment split but not sure if I have chosen the best funds. In particular, there seem to be several share classes available for the L&G funds, but the only ones available on Halifax are the "I" class. I thought they were for institutional investors only. Totally confused.

25% - Vanguard US Equity Index Fund, GB00B5B71Q71
25% - Vanguard FTSE UK All Share Index Unit Trust, GB00B3X7QG63
5% - Vanguard Global Small-Cap Index Fund, IE00B3X1NT05
25% - Legal & General European Index, GB00B0CNGR59
8% - Legal & General Japan Index, GB00B0CNGW03
7% - Legal & General Pacific Index, GB00B0CNGY27
5% - iShares Emerging Markets Equity Index Fund, GB00B84DY642

Thanks!

masonic

If what you want is a global portfolio with reduced US and overweight to UK and Europe, then you seem to have achieved that with this set of index funds. I think Fidelity offer a slightly cheaper Emerging Markets fund that should be available at Halifax and may be worth a look.

"I" class funds have been available through funds supermarkets for a long time. They are restricted in that they have a high minimum investment (e.g. £100k), but since client assets are held in collective nominee accounts, the minimum is easily achievable when spread over all holders of the fund on the platform. More recently I class has become the default clean (trail commission free) class of several funds following the clampdown on commission by the FCA.

pauper79

That's very helpful thanks

dunstonh

I also prefer well-established UK domiciled funds and physical replication where possible (although I have made some exceptions).

Vanguard use sampled replication rather than full replication.   With some of your funds, you may well find the HSBC and Fidelity tracker funds are better.

You are unusually high on Europe ex UK.   Of course, your management decisions are yours to make.

GeoffTF

dunstonh said:

I also prefer well-established UK domiciled funds and physical replication where possible (although I have made some exceptions).

Vanguard use sampled replication rather than full replication.   With some of your funds, you may well find the HSBC and Fidelity tracker funds are better.

You are unusually high on Europe ex UK.   Of course, your management decisions are yours to make.

For Vanguard, the replication method depends on the fund. Look in the Prospectus. Vanguard publishes tracking error data on its website. You can also use Trustnet to compare funds with a variety of indexes. The Vanguard and iShares (Black Rock) funds do a good job of tracking their indexes. L&G is a much smaller provider. You would have to check.

Linton

On index funds from different providers: see https://forums.moneysavingexpert.com/discussion/comment/79778821/#Comment_79778821 data from trustnet.

JohnWinder

There are countless portfolios worse than that, so you can be pleased and confused.

About £1trillion left active funds last year and went to passive. https://www.ft.com/content/aa3f3570-e691-49a9-8ccb-17d00749ede2

When you finally settle on your mix, don’t mess with it without compelling reasons, and not until a ‘cooling off’ period of several months passes. Messing with it, or not, can be a big determinant of returns just as your initial choices are. Read up the ‘mind the gap’ research.

The better indexes are:

• Broad within that sector eg not just large cap or small cap
• Cap weighted
• Well established. New indexes pop up because index investing is fashionable; all the new ones won’t be as good as the established ones.
• Doesn’t facilitate ‘front running’ by other investors, ie doesn’t signal ahead of time that stock xyz will join the index on a certain day which is likely to increase its price.
• Have low turnover because trading by the fund manager is never free of costs which you’ll bear.

The better funds 

• track those indexes closely and at low turnover and low cost
• Are well established and big enough not to close down soon.

How much difference will all that make? Probably not much. You’ve got the fundamentals right.

JohnWinder

Vanguard use sampled replication rather than full replication.   With some of your funds, you may well find the HSBC and Fidelity tracker funds are better.

……better in that regard, or better overall? And then, how do we judge better overall?
Blackrock uses sampling; this is their excuse:
‘Stratified sampling involves choosing a subset of Index eligible securities to create a portfolio that behaves like the Index. In many cases, holding every security in the Index isn't cost effective as illiquid or thinly traded securities incur higher transaction costs and wider bid-ask spreads. By investing in a subset of securities that combine to match the overall risk profile of the Index it saves the Fund incurring unnecessary trading costs which can detract from total Fund returns.’
You pays your money and takes your pick.

dunstonh

……better in that regard, or better overall? And then, how do we judge better overall?

There are lower cost trackers available in some of the areas the OP has selected that cover the same benchmark [that leads to slightly higher returns than some of the ones selected]

Also, from memory (so open to correction) the L&G Pacific fund includes emerging markets.   But there is an emerging markets fund on the list.   So, the Asia allocation is probably better suited to developed Asia. Fidelity's tracker is developed Asia.  So, it may be a better fit when you have a dedicated emerging markets fund in your portfolio build.

Albermarle

pauper79 said:

Hello. I recently moved an old workplace pension to a SIPP. I would like to invest into low cost equity tracker funds. Not keen on a global tracker due to high US exposure. I also prefer well-established UK domiciled funds and physical replication where possible (although I have made some exceptions).

I've identified seven funds to invest into. They all seem to be available through Halifax, which is my SIPP provider. I would welcome a sanity check from people here in case I am missing anything obvious. I am happy with the investment split but not sure if I have chosen the best funds. In particular, there seem to be several share classes available for the L&G funds, but the only ones available on Halifax are the "I" class. I thought they were for institutional investors only. Totally confused.

25% - Vanguard US Equity Index Fund, GB00B5B71Q71
25% - Vanguard FTSE UK All Share Index Unit Trust, GB00B3X7QG63
5% - Vanguard Global Small-Cap Index Fund, IE00B3X1NT05
25% - Legal & General European Index, GB00B0CNGR59
8% - Legal & General Japan Index, GB00B0CNGW03
7% - Legal & General Pacific Index, GB00B0CNGY27
5% - iShares Emerging Markets Equity Index Fund, GB00B84DY642

Thanks!

Even taking into account an aversion to being too heavy in the US, and a desire to have a home bias ( both quite sensible, although some will disagree of course), I would say you have gone a bit too far . Personally ( just an opinion ) I would push up the US % a bit more and drop the UK and Europe a little .

InvesterJones

An alternative single global fund which also overweights the UK is Vanguard's LS100 - it doesn't overweight the eurozone quite as heavily, and the US proportion is not cut back quite as much, but it's some of the way there so not quite as extreme a bias as your portfolio, with the simplicity of being a single fund.