Global ETF vs Global Index Fund/OEIC

blowzy

Sorry if the title isn't very clear as I'm new to investing. 

I am looking to invest a sum of money into the global stock market. I have started to watch "Damien Talks Money" on YouTube, and he said that if he was getting into investing again he would start out by putting money into the Vanguard FTSE All-World ETF (vwrp/vwrl). I was wondering why he choose to do this rather than invest in a global index fund (or OEIC, I'm completely unsure of terminology) such as Vanguard FTSE Global All Cap Index Fund (VAFTGAG). The latter does have a 0.1% higher fee. From what I have read,  on the website monevator which was recommended to me in the my last post, it seems like that Index Funds/OEICs are better than ETFs. My reasoning for this is that they are covered by FSCS, typically have lower fees and also they have no bid-offer spread. Maybe I do not understand entirely the benefits of a global ETF, as why would anybody invest in one when a index fund looks like a more sensible choice?

I'm still confused about the difference between the two, what is an index fund usually called as I have heard loads of different names thrown around? (eg, mutual funds, ICVC, collective investment schemem OECs)

Furthermore, what is the best route to take with ETF? I saw that Invesco pretty much do the same thing but charge a lower fee. Also what is the best route with the index fund/OEIC?

I pretty much have a blank state at the moment and I am going to be holding for a long time; so what would you do if in my shoes?

Albermarle

In simple terms a 100% equity global index tracker will do pretty much the same job in the end.
Choosing to go 100% equity, ( as opposed to less) is a much more significant decision than whether to use an ETF or OEIC.
OEICs are the more  established form and have been around for years ( used to be called unit trusts, or mutual funds in the US. 
ETFs are a newer invention that have gone more mainstream in the last few years.
So there is a mix in the market. 

 it seems like that Index Funds/OEICs are better than ETFs. My reasoning for this is that they are covered by FSCS, typically have lower fees 
If you look at just 100% equity global index trackers, fees vary a bit from provider to provider, so it depends. I do not think Vanguard are the cheapest in either case.
Also it depends on where you hold them, as fee structures there can also vary .

masonic

FSCS protection won't apply in either case for investment losses. FSCS protection will apply in both cases if the platform fails. The difference is only in the scenario the entity running the fund fails and "misplaces" the underlying investments.

ETFs have bid-offer spread, but OEICs can use swing pricing to create inter-day spread depending on whether there are net inflows or outflows. So you can still get bitten if you are going with the tide. This is all insignificant if you intend to buy and hold.

ETFs can be beneficial when you are on a percentage fee based platform with a cap for exchange traded investments, otherwise consider going with what is cheapest (including any trading costs). ETFs are slightly more complex, so all else being equal, you may favour OEICs.

Monevator maintains a list of the cheapest index funds in various sectors, so that is a good place to go and shortlist a few for further research.

dunstonh

e said that if he was getting into investing again he would start out by putting money into the Vanguard FTSE All-World ETF (vwrp/vwrl). I was wondering why he choose to do this rather than invest in a global index fund (or OEIC, I'm completely unsure of terminology) such as Vanguard FTSE Global All Cap Index Fund (VAFTGAG). The latter does have a 0.1% higher fee

They are also using different benchmarks.  One being all world and the other being all cap.

HSBC Ftse all world may be a better comparison  with the ETF. HSBC is a lot cheaper with the OCF/TER, and both have 0.02% transaction costs. (most investors ignore transacton costs disclosure)

it seems like that Index Funds/OEICs are better than ETFs.

There are historical reasons why you have the two different investment universes.   However, post 2013 when charges were unbundled, a lot of that went away.

blowzy

Albermarle said:

In simple terms a 100% equity global index tracker will do pretty much the same job in the end.

Which would you recommend with the lowest fees? I am on HL at the moment

toothdoctor

HL charges 11.95 to buy ETFs so can be costly to trade ETFs on that platform. 

InvesterJones

Which comes out cheaper will depend on the amount the OP has to invest and how many transactions they want to make.

GeoffTF

Albermarle said:

 it seems like that Index Funds/OEICs are better than ETFs. My reasoning for this is that they are covered by FSCS, typically have lower fees 

Only UK domiciled ETFs are covered by the FSCS. ETFs are often cheaper. With Vanguard. it is cheaper to buy a developed world tracker and an emerging market tracker separately. The emerging market weight is about 10%.

poseidon1

toothdoctor said:

HL charges 11.95 to buy ETFs so can be costly to trade ETFs on that platform. 

However they charge annual 0.45% fees for holding OEICs/ Unit trust funds, which might render the 11.95 initial charge on the ETF relatively unimportant depending on the size of the acquisition.

ColdIron

blowzy said:

Albermarle said:

In simple terms a 100% equity global index tracker will do pretty much the same job in the end.

Which would you recommend with the lowest fees? I am on HL at the moment

If the ETF or fund tracks the same index the performance will be pretty much the same less fees, the OCF

The OCF for a global tracker, ETF or OEIC, will be about 0.1% to 0.2% or about £10 to £20 pa on £20,000

But it's not all about fees, you need to consider the platform charges. If you use HL for an OEIC that's 0.45% or about £90 pa on £20,000 in an ISA. If you use an ETF the charge is capped at £45. The break even point is £10,000 so with HL it does depend upon the sums involved

Then there is the matter of dealing charges. Funds are free but ETFs will cost you £11.95 per trade, quite expensive if you trade frequently. You can buy for £0 with monthly savings if you don't mind when you trade. So with HL it does very much depend upon how you trade

You will need to run the numbers with your numbers. Or choose a cheaper platform

Bostonerimus1

Today's funds landscape reminds me of a pine forest where there's a awful lot of things that look very similar.