Buying index-linked gilts via Halifax Sharedealing - my 'interesting' experience.

Frequentlyhere

As have been a few discussions recently about buying gilts, thought I'd share my first experience with buying an Index linked gilt via Halifax Sharedealing, as it might be of interest to someone. It was certainly more eventful than I had planned.

My intention was to dip my toe in and buy £20k of TR50 - An index linked gilt with a current yield to maturity of about 2.35% (post inflation).

I entered the trade online, which went to a 'negotiated trade', I think because of how infrequently the dealing takes place. 

An hour later, a trade confirmation came through - upon inspection I was the proud owner of £10k's worth of TG50, showing a 50% loss on my screen.

As you might well expect, this prompted a call to the team. Unfortunately the rep was clearly not versed in gilts and could not explain it all, but was sure I must have accidentally bought TG50. I, having copied and pasted prices at the buying stage, was as sure as I could possibly be that I had bought TR50

Thankfully as he couldn't explain the valuation discrepancy he called the dealing team. It's good he did because they had just made a flat out error and bought entirely the wrong thing.  

So 1st lesson learned: Take lots of screenshots of your purchase as Halifax send no emails detailing your intended purchase if it goes to negotiated trade.

There was no evidence trail on my side whatsoever to show that I had bought what I said I had, which is a bit poor frankly and in different circumstances could have left me screwed.

After this, I still had apparently substantially less holdings than I had bought, about 45% less, and my portfolio screen shows a 50% loss.  This, it turns out, is because though everyone buys and sells index linked gilts at the dirty price (including accrued interest), the Halifax screen very unhelpfully values your holdings at the clean price which in this case is much much lower. Thread elsewhere I subsequently found talking about this.

I now understand this, but this still seems poor to me - why not show the valuation at the dirty price rather than the messy situation of showiing me holding a substantial loss

So 2nd lesson - if buying index linked gilts via halifax be aware that they only show the 'clean' price valuation and so there will be a (potentially very large) discrepancy in your valuation screen after purchase.

ColdIron

I think showing the clean price is common across most platforms

GeoffTF

Frequentlyhere said:

As have been a few discussions recently about buying gilts, thought I'd share my first experience with buying an Index linked gilt via Halifax Sharedealing, as it might be of interest to someone. It was certainly more eventful than I had planned.

My intention was to dip my toe in and buy £20k of TR50 - An index linked gilt with a current yield to maturity of about 2.35% (post inflation).

I entered the trade online, which went to a 'negotiated trade', I think because of how infrequently the dealing takes place. 

An hour later, a trade confirmation came through - upon inspection I was the proud owner of £10k's worth of TG50, showing a 50% loss on my screen.

As you might well expect, this prompted a call to the team. Unfortunately the rep was clearly not versed in gilts and could not explain it all, but was sure I must have accidentally bought TG50. I, having copied and pasted prices at the buying stage, was as sure as I could possibly be that I had bought TR50

Thankfully as he couldn't explain the valuation discrepancy he called the dealing team. It's good he did because they had just made a flat out error and bought entirely the wrong thing.  

So 1st lesson learned: Take lots of screenshots of your purchase as Halifax send no emails detailing your intended purchase if it goes to negotiated trade.

There was no evidence trail on my side whatsoever to show that I had bought what I said I had, which is a bit poor frankly and in different circumstances could have left me screwed.

After this, I still had apparently substantially less holdings than I had bought, about 45% less, and my portfolio screen shows a 50% loss.  This, it turns out, is because though everyone buys and sells index linked gilts at the dirty price (including accrued interest), the Halifax screen very unhelpfully values your holdings at the clean price which in this case is much much lower. Thread elsewhere I subsequently found talking about this.

I now understand this, but this still seems poor to me - why not show the valuation at the dirty price rather than the messy situation of showiing me holding a substantial loss

So 2nd lesson - if buying index linked gilts via halifax be aware that they only show the 'clean' price valuation and so there will be a (potentially very large) discrepancy in your valuation screen after purchase.

I complained about that several years ago, but they would not fix it. The same happened with AJ Bell and they did fix it. HL shows incorrect valuations online, but correct valuations on the quarterly statements.

SnowMan

I've bought index linked gilts via Halifax sharedealing a number of times. I've never had any issues. I'm intrigued by your experience.

If you had accidentally bought TG50 (the conventional gilt), because you entered the wrong code or the wrong trade was executed then you would expect the immediate valuation to be around 20K because the clean price being majorly different to the dirty price doesn't happen with conventional gilts (the accrued interest will be only a very small element of the purchase price and there is no indexation element). So something doesn't make sense in what you say. Perhaps you can explain further. If they did buy the wrong gilt and they accepted it was their error how did they go about correcting it as it would mean reselling the wrong gilt and buying the correct index linked gilt TR50? From what you say it sounds like they bought the correct index linked gilt but the customer services person wasn't clued up on the way they show the valuation of the index linked gilt and the idea that the wrong gilt had been bought cropped up but perhaps that wasn't the case. Or perhaps something is done manually on the initial trade confirmation and the wrong code showed initially on the initial trade confirmation although the right gilt had been bought? Obviously you have the information but that's how it appears to me.

Anyone buying an index linked gilt needs to read up on it first, this monevator article is excellent 

https://monevator.com/how-to-buy-index-linked-gilts/

Once you've read that you know to expect the immediate valuation of a purchased index linked gilt to be much less than it's real worth (especially if it was issued some time ago) because it is shown as valued at the clean price and not the clean price plus indexation. That happens on a lot of platforms and isn't great and I'm not defending Halifax Sharedealing here. But that's just how it is. 

Frequentlyhere

SnowMan said:

I've bought index linked gilts via Halifax sharedealing a number of times. I've never had any issues. I'm intrigued by your experience.

If you had accidentally bought TG50 (the conventional gilt), because you entered the wrong code or the wrong trade was executed then you would expect the immediate valuation to be around 20K because the clean price being majorly different to the dirty price doesn't happen with conventional gilts (the accrued interest will be only a very small element of the purchase price and there is no indexation element). So something doesn't make sense in what you say. Perhaps you can explain further. 

Hi Snowman. You're entirely right here, it is very odd, and I can't fully explain it. It can't just be me being fat-fingered, because the rep and I both discussed the error and could see my apparent holdings of TG50 before eventually he went off to the trading desk, put me on hold, and after a few refreshes my holding changed like magic to TR50 and they fessed up it was an error. They wouldn't have done that surely if I was at fault, it certainly wasn't presented as a nicety because I had messed up, apologies were given.

But as you say, it doesn't entirely make sense because TG50 wouldn't have such a price difference. I don't know what the answer is to that - could it have been mislabelled rather than buying the wrong thing? Seems very odd.

I can only guess that the 'negotiated trade' process is a lot more manual than it perhaps should be. Unfortunately the audit trail of all of this is appalling - it's all just been altered on the fly, so I have no historic view of what happened.

Re: clean/dirty price, absolutely this is partly my naivety of the process at play, though it seems far from ideal to subsequently show a valuation statement showing you've made a double digit loss on your holdings. RE: monevator, I'll read it now, as a big fan of theirs I'm surprised I hadn't seen it aready. 

To be honest, if Halifax hadn't have also bought the wrong thing I'm sure I'd have sussed out the dirty/clean difference without having to contact them, but I was obviously thrown for 6 by a different gilt appearing in combo with that. 

edit: Reading this monevator article - quote - 

"Why don’t they show the dirty price?

God knows. It’s not as if they don’t calculate it when you make a purchase. Perhaps someone who knows about the live price plumbing can supply an answer. But it’s an annoying omission."

I agree, and if AJ Bell have corrected this as GeoffTF says, I think they should too. I'll add my voice to having it changed to them.

Enzo_L

Frequentlyhere said:

I entered the trade online, which went to a 'negotiated trade', I think because of how infrequently the dealing takes place. 

In the last year I've made quite a few purchases of low coupon conventional gilts via IWeb - an HSDL brand - and they always go to negotiated trades, irrespective of the value of the trade or the frequency with which the gilt is traded.
However, the trade is always executed within a few minutes.

DRS1

It is interesting to me that you could buy an ILG online at all.  I thought you had to phone up to buy them (except for a couple of really old ones).

Frequentlyhere

Hi Enzo_L,  that's good to know as I was wondering if it might be different if I had placed a larger order, so thanks for clarifying.

I was concerned about what price that would end up yielding, but it does seem reasonable. However, it's difficult to verify even that, as my trading record shows the dirty price whilst my holding shows the clean.  

Again, this does not seem ideal to me.

GeoffTF

Frequentlyhere said:

SnowMan said:

I've bought index linked gilts via Halifax sharedealing a number of times. I've never had any issues. I'm intrigued by your experience.

If you had accidentally bought TG50 (the conventional gilt), because you entered the wrong code or the wrong trade was executed then you would expect the immediate valuation to be around 20K because the clean price being majorly different to the dirty price doesn't happen with conventional gilts (the accrued interest will be only a very small element of the purchase price and there is no indexation element). So something doesn't make sense in what you say. Perhaps you can explain further. 

I can only guess that the 'negotiated trade' process is a lot more manual than it perhaps should be.

"Why don’t they show the dirty price?

God knows. It’s not as if they don’t calculate it when you make a purchase.

I made ILG trades with iWeb (i.e. Halifax with a different colour) back in the days when I got to speak with the dealer. The process was very manual. The dealer did not know the dirty price. He had to ring a market maker to find that out. The trade was executed by phoning a market maker. On one occasion the dealer said he did not like the price and phoned another market maker. The dealer typed the details of the trade into the online system.

With HL, you can trade conventional gilts online, and ILGs over the telephone at the online rate.

leosayer

Showing the clean price seems normal.

The thread below shows the impact this had on someone's tax free cash from their II SIPP:

https://forums.moneysavingexpert.com/discussion/6603801/interactive-investor-calculation-of-25-tax-free-cash-when-holding-index-linked-gilts/p1

InvesterJones

DRS1 said:

It is interesting to me that you could buy an ILG online at all.  I thought you had to phone up to buy them (except for a couple of really old ones).

It's fine and quick to buy them online at iWeb. You get the dirty/clean price discrepancy as noted above*, but otherwise it's just like buying any other gilt - it always goes to negotiated trade and then completes shortly after.

*I use yieldgimp to get a latest index ratio and accumulated interest and then apply this to my units so I know what the actual value is.