Vanguard FTSE Global All Cap in ISA switch to ETF version?

GeoffTF

https://forums.moneysavingexpert.com/discussion/comment/82118714#Comment_82118714

Vanguard global OEICs are usually priced at 9.00 pm. The LSE trades for 8.00 am to 4:30 pm. You probably will not be able to reinvest the proceeds of selling a global OEIC until the market opens the second working day after that. It is a bad idea to trade in the first hour or so.

Lets assume the OEIC is in an ISA. I would put some cash in the ISA, by selling some bonds within the ISA, if needs be. I would place an order to sell some of the OEIC. I would use my cash to invest the likely proceeds of the sale in the ETF, either near the market close or an hour after the market opens the next day. I would repeat that process until the entire OEIC holding has been converted.

Daily price movements are usually less than 1%. If you are switching £100K (in one go) and the price moves 1% against you, your loss will be £1,000. (I am ignoring any losses as a result of swing pricing, spreads and premium/discount here.) The brokerage cost for doing the switch in ten steps with SWSD would be £100, but you will greatly reduce your likely loss if the prices move against you. (I leave the detailed statistics as an exercise to the reader.)

The general consensus seems to be that it is not a good idea to switch.

EthicsGradient

https://forums.moneysavingexpert.com/discussion/comment/82118783#Comment_82118783

I can't see that "the general consensus seems to be that it is not a good idea to switch". People are just trying to work out ways to minimise the risk of a sudden world market movement. The saving of 0.16% per year in charges looks well worth aiming for. The only thing against that is that, perhaps, Vanguard competition against itself could mean that they lower the fund charges soon to something comparable to the new ETF.

orange-juice

https://forums.moneysavingexpert.com/discussion/comment/82118778#Comment_82118778

What about in the scenario where you had spare funds to buy the equivalent oeic/etf in a GIA on the same day of execution?

masonic

https://forums.moneysavingexpert.com/discussion/comment/82118820#Comment_82118820

That was the scenario I was talking about. When you buy and sell the OEIC on Friday, then you have no more or fewer OEIC units on Tuesday when the sale proceeds become available to reinvest. You then have to time the purchase of the ETF with the next sale tranche. You need to commit to the sale by about 10-11 am (or whatever cut-off time for your platform) and will be effective at 9 pm that day, but the ETF can only be bought up to 4:30 pm, so you will be overexposed for those hours between ETF purchase and OEIC sale. You cannot buy the ETF at 9 pm.

If you instead kick of the next sale on Monday and have it effective at 9 pm Monday, then you will be out of the market for around 10 hours minimum, and volatility/spreads tends to be greater in the first half hour of trading.

One could alternate between the 5 hours overexposure and 10 hours underexposure to try to stay as neutral as possible, but it starts to get silly.

GeoffTF

https://forums.moneysavingexpert.com/discussion/comment/82118821#Comment_82118821

The "general consensus" is more for switching from the lower cost funds. Both masonic and I seem to have backed off. I have also seem a couple of YouTube videos coming to the same conclusion. Nonetheless, VALL is selling like hot cakes. (There does not appear to be much interest in VSML though. Vanguard liquidated its factor funds when they failed to grow to an economic size.)

We are still plumbing the murky depths of the likely costs of switching. Nonetheless, the break even period for switching from the global OEIC to the global ETF could still be several years. A lot could happen in that time. Vanguard could cut the cost of the OEIC. The Chancellor could change the tax rules. There could be a major international event. The investor could have a life changing event, or decide to change his portfolio anyway.

I switched from VWRL to VEVE eight tears ago when I realised that VEVE with a market weight of VFEM was much cheaper. I soon added to my VEVE holding and is now more than 20 times larger than my VWRL holding was. That switch was clearly worthwhile. I saved a lot of money over the years, but the cost difference between the two alternatives is now wafer thin.

EthicsGradient

I don't understand 'The "general consensus" is more for switching from the lower cost funds', which seems to contradict itself (no one is talking about switching from funds that are lower cost). masonic said they wouldn't be using the new ETF personally, but I don't read that as suggesting it's not worth switching from the FTSE Global All-Cap fund at 0.23% OCF to the FTS Global All-Cap ETF at 0.07%. The VALL bid/ask spread is about 0.1%. It should take under a year to make that back.

Bravepants

So just catching up on this thread, it sounds as though I would be better if I left the OEIC fund as it is, but for future investments use the ETF version. Taking into account early trading volatility that is.

In moving to Scottish Widows I'm saving the 0.15% per year platform fee in any case.

masonic

I'm also confused by the recent exchange, but my view is that it is worth it for someone currently in the equivalent OEIC. My only reservation is with the timing - rushing in right now may lead to a less optimal result than waiting a few weeks/months, during which time trading should become more balanced and little in the way of extra fees will be incurred.

The saving for me is much lower (my weighted average is 0.09%) than the saving for someone in the OEIC (0.23%), which is why I don't plan to do anything myself. If I wanted to replicate what I have currently, that would involve mixing in some of the ex-US fund, which would push up the cost to about where it is now.

Bravepants

Maybe I'll give it until April next year, timely enough with the new tax year.

The discussion in this thread is still not as clear cut as I thought it was.

Cheaper ETF - no brainer

No currency issues - OK no brainer

It seems ETF bid-ask spread volatility and trading times are the real issues at the moment.

masonic

By the time you've moved to SWSD (which is a no-brainer), we will have a lot more data about the last of your points. The fourth one to consider is whether Vanguard will make a cut to the existing OEIC to stem outflows.