Why do people with the knowledge seem to invest more in ETFs?

B0bbyEwing

That could be totally wrong which is why I used the word seem (seems to me). Also with "the knowledge" I'm referring to people will more knowledge than me, which will be pretty much all of you & most people I will encounter on any kind of financial forum like this one. Obviously these things aren't factually correct, they're just how things seem to me. Ok so the question -

When on financial forums like this one here & reading what people invest in & how they invest, they often seem to invest mostly/fully in ETFs. I didn't really understand them so left them alone. I invest in index funds. Bit of Googling between the two and I think they may be referred to as OEIC funds? I could be wrong (see, that knowledge thing).
I was looking for a low cost platform for a sum of money I want to invest while keeping it separate from my main pot. Google pointed me towards Trading 121 & from what I see they're fully ETFs. No funds (like how I'm invested with HSBC FTSE All World Index in AJ Bell for example).
So I just Googled for ETF equivalents on that (and was pointed towards VWRP as an example) but it also made me wonder why so many gravitate to ETFs? Looking at the charge it's basically the same with HSBC being 0.13% & VWRP being 0.14% (source: Google), so to be picky the ETF is dearer.

george4064

Here are 2 key reasons I can think of:

1. Some investing apps/platforms (Trading212, InvestEngine and some others) only allow customers to invest in listed instruments. Since ETFs are listed and are structured in a way that a single ETF can have underlying exposure to multiple stocks/shares/whatever. Many people therefore just buy a global equity ETF with one of these providers.
2. Some platforms (AJBell, HL and maybe others) operate a charge cap on its respective platform fee for listed instruments only. In order to save costs and benefit from that charge cap, many investors use ETFs (and other listed investments) via these platforms.

GeoffTF

Other platforms support OEICs and Unit Trusts and do not charge extra for holing them. People often choose these funds on those platforms. There are also mugs who pay extra for nothing.

cloud_dog

Younger people have gained a lot of understanding of what to invest in from US sources, blogs, SM, etc, etc, and a lot of the ones I have come into online contact with were not even aware of OEIC alternative comparable funds.

In the US ETFs receive beter tax treatment than mutual funds (OEICs) and therefore they are the go to option, and if all you are seeing / reading about is ETFs then, that is what you will look to replicate.

As an aside, ETFs can be traded real-time, rather than waiting for the next pricing point for OEICs, and I feel there is a lot of 'trading' push on consumers; both from some providers and the whole FOMO / YOLO crowd.

jimjames

I'd like to think I have a good level of knowledge as I've been investing over 30 years. I've got no ETFs in my portfolio so I'm not sure your theory holds water.

leosayer

Some investment strategies are only available in one fund form or another.

Want an unhedged market-cap weighted global equity index fund including emerging markets and small cap stocks? Fund VAFTGAG seems to be the only answer.

Want a short-term gilt acc fund? ETF IGL5 seems to be the only answer.

Is rather not limit myself to either ETFs or funds.

Linton

To implement my investment strategy I need to hold funds that invest in a very wide range of underlying companies within defined bounds - eg geography or size. These are mostly only available as ETFs. If a suitable ETF is not available I would choose an OEIC where the manager's remit matched by objectivesm

Also trading of ETFs is almost instantaneous. Selling one OEIC fund to buy another takes several days.

The cost aspects are irrelevent to me being negligible compared with the investment values involved.

Heedtheadvice

…and there I have a preference for Investment Trusts......

But certaintly not exclusively!

dunstonh

Why do people with the knowledge seem to invest more in ETFs?

Broadly speaking, ETFs carry slightly higher risk than the equivalent OEIC fund. There is no FSCS protection.

In the past, ETFs used to be cheaper than OICs, but that's no longer the case.

The lack of FSCS protection is unlikely to be a big issue for an experienced investor who knows the types of ETFs to avoid. However, for inexperienced investors, they like the reassurance of the FSCS protection. Even if with mainstream funds, it's almost certainly never going to be utilised.

Older investors will recall issues with Synthetic ETFs and that may put them off using ETFs in general. However, avoiding synthetic ETFs and sticking to physical replication can remove that issue.

For reference, I have no ETFs in my own portfolio. Not a conscious decision, just how it happens to be.

aroominyork

"almost certainly never"

I don't think those words carry quite the same comfort as 20 years ago.

B0bbyEwing

https://forums.moneysavingexpert.com/discussion/comment/82102594#Comment_82102594

Yeah I understood the real time thing.

Though my view on this was I pay in £x per month every month. Ideally I'd like to buy in at the best day of the month at the best time of day at the month but unfortunately have no crystal ball. The money goes in & it buys what it buys which will hopefully do a job over time. No point in me fretting over which time of day this months payment is better being put in at. It's all automatic & job done, forgetaboutit.