Share dealing platforms - totally confused
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ValiantSon wrote: »Rather than just stating that again it would actually help the OP (and others) if you explained how you have come to that conclusion. Even if they are "managed" funds (which is a stupid term to use because all funds are managed - I think you mean "actively managed") given their OCF they are not particularly expensive.
They're managed because rather than following the market someone is choosing the allocation within the funds. In the case of VLS100 there is a heavy overweight to the FTSE All Share. The funds I mentioned track an index which is determined by the market.ValiantSon wrote: »Oh, and no comment on the higher price of Vanguard FTSE Global All Cap Index?
The difference very small. But if 0.02% is a worry one can use the HSBC FTSE All World Index fund which is cheaper than VLS100 and the Blackrock.0 -
bowlhead99 wrote: »Why?
Cheers
Do you believe what I stated is incorrect?0 -
Further to my earlier question, I've decided £25 should be comfortably enough to cover fees for the first year, even allowing for some spectacular growth (which I don't actually anticipate!)
I am fairly sure I need to keep this money as cash within the LISA, e.g. invest £3975 of the £4000 initial deposit. Can somebody confirm that I am right in this please?0 -
Yes, that would be the right thing to do. And as you say, the amount you are reserving is prudent enough to very comfortably cover the fees. If the fund performed such that for the average of the whole year, its value was £6000: the average quarterly charge would be less than four quid. And being realistic, it isn't going to perform that well. But reserving £25 and investing the rest isn't going to cripple your performance compared to only reserving £15 or £12.Further to my earlier question, I've decided £25 should be comfortably enough to cover fees for the first year, even allowing for some spectacular growth (which I don't actually anticipate!)
I am fairly sure I need to keep this money as cash within the LISA, e.g. invest £3975 of the £4000 initial deposit. Can somebody confirm that I am right in this please?
So, you could place your order to buy £3975 of the fund, exclusive of dealing fee. And then the dealing fee of £1.50 will leave you with £23.50 cash in the account out of the original £4000, and then at the end of every April, July, September, January they will take the fee for the quarter just gone, but the fees won't be high enough to totally deplete the £23.50 between now and next April. Obviously if you add new money from your 2018/19 allowance during that time, or the fund grows spectacularly, the fees will start to tick up.
- Imagine the All Cap Index has 5% of its assets in smaller companies (because it attempts to cover companies with 'all' market cap sizes rather than just the large and medium ones).ValiantSon wrote: »
Oh, and no comment on the higher price of Vanguard FTSE Global All Cap Index?
- Say small company indexes outperform largecap indexes by 1% annualised over time.
- Then the fund which holds 5% of its money in smallcaps will outperform the fund which holds that 5% in largecaps, by 1%; on just that 5% of its money.
- 1% outperformance on 5% is 0.05% on the total
So, I wouldn't be bothered about needing to pay 0.02% extra to hold a fund that held additional asset classes and might be expected to deliver 0.05% more gross performance. The drag of a marginally higher fee in that case would not create a worse result. The main component of a result is asset allocation, and a few basis points of fees should be relegated to an afterthought.
Correct.Do you believe what I stated is incorrect?
The fee difference is marginal (a twentieth of a percent). The difference in performance between global equity regions from one year to the next can be large (twenty percent, or more), which will dwarf the marginal fee difference. Over the long term, a lower fee is good. But also over the long term, the fact that the slightly more 'active' manager allows the ratios to drift to a point and then rebalances to its target (buy high sell low effect, rebalancing asset classes which aren't 100% correlated), is also good.
The traditional argument from fans of passive investing is that the market knows best what the prices will be so just buy the market very cheaply, and the active decision makers will get it right sometime but not enough to beat your performance because they want to charge 1% a year while the index can be followed for a fraction of that cost, and they can't deliver that much outperformance over the long term.
However in these examples you are talking about product providers who are packaging up a fund to be very competitively priced against its rivals in the space and so we're not talking about them charging a percent every year compared to the tracker at a small fraction of that, and being unable to beat that performance drag. The peformance drag from fees is tiny, and such a tiny advantage to the tracker might be offset by the favourable gross performance effects of periodic rebalancing, as long as the periodic rebalancing process is not costing much money. In any given year, one region or industry sector may perform substantially differently from another and so the asset allocation itself is the main driver of performance differences, considering both asset-level performance and macro effects such as exchange rate swings.
I would say that your comment "The two funds you mention are actively managed funds. Over long periods of time it is more likely than not that they will be outperformed by funds which tracks a global index" implies some extra insight on your part which you don't really have, or have not fully researched.
By all means say "in my opinion you'd be better off with a global index". or say "over long periods of time it is quite possible that they will be outperformed by funds which track a global index", or say "it is more likely than not that they will be outperformed by funds which track a global index, because a) this and b) that and c) the other".
Going back to my original comment on your comment, I was just looking for the third approach: x is more likely because....0 -
They're managed because rather than following the market someone is choosing the allocation within the funds. In the case of VLS100 there is a heavy overweight to the FTSE All Share. The funds I mentioned track an index which is determined by the market.
You are stretching the definition of what an actively managed fund is. (As I've already pointed out, all funds are managed). These are funds of funds which use index trackers, so beyond the initial decision as to where to allocate the proportions in each of the underlying funds there is no management decision. From that point on they simply track the indexes, just like the funds that you mentioned. To suggest that the initial decision makes them actively managed is disingenuous: Vanguard, for instance, made that management decision in 2011 before launching the fund. Even the funds you mention required initial management decisions, including which index to track!
Actively managed funds have a manager who makes decisions about where to invest and when, which is very different from what is happening with these passive multi-asset funds.The difference very small. But if 0.02% is a worry one can use the HSBC FTSE All World Index fund which is cheaper than VLS100 and the Blackrock.
Your contention was that,The two funds you mention are actively managed funds. Over long periods of time it is more likely than not that they will be outperformed by funds which tracks a global index such as Vanguard FTSE Global All Cap Index Fund or HSBC FTSE All-World Index Fund.
The implication of this was that the OCF would be the drag on the portfolio (you can't have meant that all actively managed funds will be outperformed by an index tracker - not that these are actively managed - because that is demonstrably untrue). I demonstrated that one of the two funds you cited was actually more expensive than the ones the OP was considering. It is, therefore, reasonable to point this out, and (once again) disingenuous of you to suggest that the higher price is, "very small". You used that fund as an example of a cheaper option that would therefore have less drag on returns, but it is not cheaper, and so returns might well reasonably be lower by using it. Equally, the returns might be better due to sector or geographical allocation, but the point remains that the OCF difference can have drag on returns, and that you had clearly implied that these were better options because of the costs.
The HSBC fund is cheaper, and I never disputed that. There is nothing wrong with you suggesting it to the OP for consideration, but it is a different proposition from the multi-asset funds that they were considering, and that ought to be made clear to them.0 -
bowlhead99 wrote: »Yes, that would be the right thing to do. And as you say, the amount you are reserving is prudent enough to very comfortably cover the fees. If the fund performed such that for the average of the whole year, its value was £6000: the average quarterly charge would be less than four quid. And being realistic, it isn't going to perform that well. But reserving £25 and investing the rest isn't going to cripple your performance compared to only reserving £15 or £12.
So, you could place your order to buy £3975 of the fund, exclusive of dealing fee. And then the dealing fee of £1.50 will leave you with £23.50 cash in the account out of the original £4000, and then at the end of every April, July, September, January they will take the fee for the quarter just gone, but the fees won't be high enough to totally deplete the £23.50 between now and next April. Obviously if you add new money from your 2018/19 allowance during that time, or the fund grows spectacularly, the fees will start to tick up.
- Imagine the All Cap Index has 5% of its assets in smaller companies (because it attempts to cover companies with 'all' market cap sizes rather than just the large and medium ones).
- Say small company indexes outperform largecap indexes by 1% annualised over time.
- Then the fund which holds 5% of its money in smallcaps will outperform the fund which holds that 5% in largecaps, by 1%; on just that 5% of its money.
- 1% outperformance on 5% is 0.05% on the total
So, I wouldn't be bothered about needing to pay 0.02% extra to hold a fund that held additional asset classes and might be expected to deliver 0.05% more gross performance. The drag of a marginally higher fee in that case would not create a worse result. The main component of a result is asset allocation, and a few basis points of fees should be relegated to an afterthought.
Correct.
The fee difference is marginal (a twentieth of a percent). The difference in performance between global equity regions from one year to the next can be large (twenty percent, or more), which will dwarf the marginal fee difference. Over the long term, a lower fee is good. But also over the long term, the fact that the slightly more 'active' manager allows the ratios to drift to a point and then rebalances to its target (buy high sell low effect, rebalancing asset classes which aren't 100% correlated), is also good.
The traditional argument from fans of passive investing is that the market knows best what the prices will be so just buy the market very cheaply, and the active decision makers will get it right sometime but not enough to beat your performance because they want to charge 1% a year while the index can be followed for a fraction of that cost, and they can't deliver that much outperformance over the long term.
However in these examples you are talking about product providers who are packaging up a fund to be very competitively priced against its rivals in the space and so we're not talking about them charging a percent every year compared to the tracker at a small fraction of that, and being unable to beat that performance drag. The peformance drag from fees is tiny, and such a tiny advantage to the tracker might be offset by the favourable gross performance effects of periodic rebalancing, as long as the periodic rebalancing process is not costing much money. In any given year, one region or industry sector may perform substantially differently from another and so the asset allocation itself is the main driver of performance differences, considering both asset-level performance and macro effects such as exchange rate swings.
I would say that your comment "The two funds you mention are actively managed funds. Over long periods of time it is more likely than not that they will be outperformed by funds which tracks a global index" implies some extra insight on your part which you don't really have, or have not fully researched.
By all means say "in my opinion you'd be better off with a global index". or say "over long periods of time it is quite possible that they will be outperformed by funds which track a global index", or say "it is more likely than not that they will be outperformed by funds which track a global index, because a) this and b) that and c) the other".
Going back to my original comment on your comment, I was just looking for the third approach: x is more likely because....
Fair enough. I'll say then that I believe over long periods of time it is more likely than not that VLS100 and the Blackrock fund will be outperformed by funds which tracks a global index. I believe this largely because the two funds overweight the FTSE All Share Index which the market says should be smaller. Incidentally although the history of global tracker funds available to DIY investors in the UK is relatively short, in it's lifetime VLS100 has been beaten by the global index trackers.
Of course it's entirely possible that eventually Vanguard will tweak VLS100 so that more accurately reflects the global stock market - they have said themselves "we think investors prefer to hold more in their home market but we believe it!!!8217;s of benefit in terms of diversification for investors to more closely reflect the global market weightings."
I value your opinion bowlhead so over long periods of time which do you believe will perform better?0 -
ValiantSon wrote: »You are stretching the definition of what an actively managed fund is. (As I've already pointed out, all funds are managed). These are funds of funds which use index trackers, so beyond the initial decision as to where to allocate the proportions in each of the underlying funds there is no management decision. From that point on they simply track the indexes, just like the funds that you mentioned. To suggest that the initial decision makes them actively managed is disingenuous: Vanguard, for instance, made that management decision in 2011 before launching the fund. Even the funds you mention required initial management decisions, including which index to track!
Actively managed funds have a manager who makes decisions about where to invest and when, which is very different from what is happening with these passive multi-asset funds.
Your contention was that,
The implication of this was that the OCF would be the drag on the portfolio (you can't have meant that all actively managed funds will be outperformed by an index tracker - not that these are actively managed - because that is demonstrably untrue). I demonstrated that one of the two funds you cited was actually more expensive than the ones the OP was considering. It is, therefore, reasonable to point this out, and (once again) disingenuous of you to suggest that the higher price is, "very small". You used that fund as an example of a cheaper option that would therefore have less drag on returns, but it is not cheaper, and so returns might well reasonably be lower by using it. Equally, the returns might be better due to sector or geographical allocation, but the point remains that the OCF difference can have drag on returns, and that you had clearly implied that these were better options because of the costs.
The HSBC fund is cheaper, and I never disputed that. There is nothing wrong with you suggesting it to the OP for consideration, but it is a different proposition from the multi-asset funds that they were considering, and that ought to be made clear to them.
Where did I say Vanguard FTSE Global All Cap Index fund was cheaper than VLS100?0 -
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ValiantSon wrote: »Already answered in the post you quoted.
No it's not answered. So where did I say Vanguard FTSE Global All Cap Index fund was cheaper than VLS100?0
This discussion has been closed.
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