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City of London IT vs Vanguard FTSE 100 index fund

Closed-end funds and OEICs
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City of London IT vs Vanguard FTSE 100 index fund

#520850

Postby elephanthunt11 » August 8th, 2022, 11:23 pm

I’m toying with the idea of switching my holdings from a FTSE100 fund to CTY. Mainly for the quarterly payout, gearing and fee caps with HL.

I’m trying to draw up a pros and cons list and would appreciate your take on it.

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Re: City of London IT vs Vanguard FTSE 100 index fund

#520852

Postby Mike4 » August 8th, 2022, 11:34 pm

I'm noticing a general shift in preference to investing in ITs over trackers. I think this is because having a professional IT manager whose job it is to make better decisions about what companies to invest in a sector than the average spod in the street (i.e. me) can without a shedload of research, seems attractive.

It certainly is to me.

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Re: City of London IT vs Vanguard FTSE 100 index fund

#520856

Postby Spet0789 » August 8th, 2022, 11:58 pm

Bear in mind that if you shift to a U.K. ETF (such as VUKE) you will also benefit from the HL fee cap. Holding funds with HL is horribly expensive.

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Re: City of London IT vs Vanguard FTSE 100 index fund

#520868

Postby Dod101 » August 9th, 2022, 6:47 am

Spet0789 wrote:Bear in mind that if you shift to a U.K. ETF (such as VUKE) you will also benefit from the HL fee cap. Holding funds with HL is horribly expensive.


I think no one mentioned HL. There are other platforms you know.

Dod

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Re: City of London IT vs Vanguard FTSE 100 index fund

#520871

Postby Spet0789 » August 9th, 2022, 7:08 am

Dod101 wrote:
Spet0789 wrote:Bear in mind that if you shift to a U.K. ETF (such as VUKE) you will also benefit from the HL fee cap. Holding funds with HL is horribly expensive.


I think no one mentioned HL. There are other platforms you know.

Dod


Re-read the first post.

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Re: City of London IT vs Vanguard FTSE 100 index fund

#520873

Postby Dod101 » August 9th, 2022, 7:14 am

Spet0789 wrote:
Dod101 wrote:
Spet0789 wrote:Bear in mind that if you shift to a U.K. ETF (such as VUKE) you will also benefit from the HL fee cap. Holding funds with HL is horribly expensive.


I think no one mentioned HL. There are other platforms you know.

Dod


Re-read the first post.


Oops! Not in itself a good reason for switching though surely?

Dod

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Re: City of London IT vs Vanguard FTSE 100 index fund

#520904

Postby JohnW » August 9th, 2022, 8:40 am

I suppose quarterly payments could trump long term total return; each to his own. And, we don't know which of your choices will give the better total return, so why not? But do be aware of the research suggesting making changes robs the average investor of the returns available in their chosen funds.
'But what the Dalbar Study shows is that there’s a difference between the average investment return that an investment generates, and what the average investor in that investment receives.
Often it’s because we’re trading, changing in and out. We’re looking for the next hot investment because that’s what we think our job is. That’s what the news tells us. The financial pornography circus tells us that’s our job!' https://www.evidenceinvestor.com/tag/dalbar-study/. And...
'Our annual "Mind the Gap" study of dollar-weighted returns (also known as investor returns) finds investors earned about 9.3% per year on the average dollar they invested in mutual funds and exchange-traded funds over the 10 years ended Dec. 31, 2021. This was about 1.7 percentage points less than the total returns their fund investments generated over that span. This shortfall, or "gap," stems from poorly timed purchases and sales of fund shares, which cost investors nearly one sixth the return they would have earned if they had simply bought and held.' https://www.morningstar.com/articles/11 ... ds-returns
But on the plus side, you're getting out of an investment that has gained 9% in the last year, into one that has lost 14%. Better than the other way around.

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Re: City of London IT vs Vanguard FTSE 100 index fund

#520974

Postby Hariseldon58 » August 9th, 2022, 11:34 am

JohnW wrote:I suppose quarterly payments could trump long term total return; each to his own. And, we don't know which of your choices will give the better total return, so why not? But do be aware of the research suggesting making changes robs the average investor of the returns available in their chosen funds.
'But what the Dalbar Study shows is that there’s a difference between the average investment return that an investment generates, and what the average investor in that investment receives.
Often it’s because we’re trading, changing in and out. We’re looking for the next hot investment because that’s what we think our job is. That’s what the news tells us. The financial pornography circus tells us that’s our job!' https://www.evidenceinvestor.com/tag/dalbar-study/. And...
'Our annual "Mind the Gap" study of dollar-weighted returns (also known as investor returns) finds investors earned about 9.3% per year on the average dollar they invested in mutual funds and exchange-traded funds over the 10 years ended Dec. 31, 2021. This was about 1.7 percentage points less than the total returns their fund investments generated over that span. This shortfall, or "gap," stems from poorly timed purchases and sales of fund shares, which cost investors nearly one sixth the return they would have earned if they had simply bought and held.' https://www.morningstar.com/articles/11 ... ds-returns
But on the plus side, you're getting out of an investment that has gained 9% in the last year, into one that has lost 14%. Better than the other way around.


There have been quite a few studies that have debunked the size of the investor failure reported by Dalbar over the years.

For the OP FTSE 100 vs City of London, historically the results have been close, CTY will maintain/increase the dividend at all costs and this can be reassuring in difficult times.

Over the long term its likely there will be little difference either way, my gut instinct would be that Equity Income has historically done rather well in the UK, not so the last 15 years, but perhaps we have a mean reversion and it will do better going forward ?

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Re: City of London IT vs Vanguard FTSE 100 index fund

#520976

Postby scotia » August 9th, 2022, 11:37 am

Mike4 wrote:I'm noticing a general shift in preference to investing in ITs over trackers. I think this is because having a professional IT manager whose job it is to make better decisions about what companies to invest in a sector than the average spod in the street (i.e. me) can without a shedload of research, seems attractive.

It certainly is to me.

Over 5 years the total return of CTY has closely matched the FTSE 100 index. There is little evidence of a superior investment selection by its professional IT manager.

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Re: City of London IT vs Vanguard FTSE 100 index fund

#520982

Postby absolutezero » August 9th, 2022, 12:14 pm

Mike4 wrote:I'm noticing a general shift in preference to investing in ITs over trackers. I think this is because having a professional IT manager whose job it is to make better decisions about what companies to invest in a sector than the average spod in the street (i.e. me) can without a shedload of research, seems attractive.

It certainly is to me.

What makes you think a 'professional' manager makes better decisions than the average spod, for which, read the entire market, which consists of millions (or even billions) of people?

Keep in mind the abject failure of the overwhelming majority of managers to consistently beat the index.

Hendrik Bessimbinder (and others) have done a lot of work on this.
4% of U.S. stocks since 1926 have been responsible for 96% of the gains in the U.S. stock market.
If your manager didn't have those shares, then you will have under performed.
https://medium.com/@markgregorski/why-most-money-managers-underperform-the-market-average-8c81d1e5943f

90% of funds have lagged below their benchmark in the last 15 years.
https://www.businessinsider.com/personal-finance/investment-pros-cant-beat-the-stock-market-2020-7?r=US&IR=T

The lesson?
"Professionals" are usually worse than the index.

Some managers do beat the index, but can you identify them in advance? Probably not.
Would you stick with them in the years where they do under perform? Probably not.

The average spod is better off with a cheap global tracker.

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Re: City of London IT vs Vanguard FTSE 100 index fund

#521011

Postby Spet0789 » August 9th, 2022, 12:55 pm

Dod101 wrote:
Spet0789 wrote:
Dod101 wrote:
Spet0789 wrote:Bear in mind that if you shift to a U.K. ETF (such as VUKE) you will also benefit from the HL fee cap. Holding funds with HL is horribly expensive.


I think no one mentioned HL. There are other platforms you know.

Dod


Re-read the first post.


Oops! Not in itself a good reason for switching though surely?

Dod


Depends how much you have! If you’re with HL, switching from a FTSE tracker fund to a FTSE ETF would save perhaps £300-400 per year on £100k, even allowing for slightly higher fees on the ETF.

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Re: City of London IT vs Vanguard FTSE 100 index fund

#521132

Postby Mike4 » August 9th, 2022, 7:02 pm

absolutezero wrote:
Mike4 wrote:I'm noticing a general shift in preference to investing in ITs over trackers. I think this is because having a professional IT manager whose job it is to make better decisions about what companies to invest in a sector than the average spod in the street (i.e. me) can without a shedload of research, seems attractive.

It certainly is to me.

What makes you think a 'professional' manager makes better decisions than the average spod, for which, read the entire market, which consists of millions (or even billions) of people?

Keep in mind the abject failure of the overwhelming majority of managers to consistently beat the index.

Hendrik Bessimbinder (and others) have done a lot of work on this.
4% of U.S. stocks since 1926 have been responsible for 96% of the gains in the U.S. stock market.
If your manager didn't have those shares, then you will have under performed.
https://medium.com/@markgregorski/why-most-money-managers-underperform-the-market-average-8c81d1e5943f

90% of funds have lagged below their benchmark in the last 15 years.
https://www.businessinsider.com/personal-finance/investment-pros-cant-beat-the-stock-market-2020-7?r=US&IR=T

The lesson?
"Professionals" are usually worse than the index.

Some managers do beat the index, but can you identify them in advance? Probably not.
Would you stick with them in the years where they do under perform? Probably not.

The average spod is better off with a cheap global tracker.


But, but....

Surely one buys an IT to get exposure to a market sector without having to get one's hands dirty picking individual shares. e.g 'house builders, energy storage, tec. Well I do anyway.

Whatever the stats on index trackers say, a successful professional IT manager will be making better stock picks than I would be making. Or do you hold that my picks based on research squeezed into the gaps between boiler fixings, will be better than someone who does it for a living?

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Re: City of London IT vs Vanguard FTSE 100 index fund

#521149

Postby UnclePhilip » August 9th, 2022, 7:51 pm

The average spod is better off with a cheap global tracker.


But, but....

Surely one buys an IT to get exposure to a market sector without having to get one's hands dirty picking individual shares. e.g 'house builders, energy storage, tec. Well I do anyway.

Whatever the stats on index trackers say, a successful professional IT manager will be making better stock picks than I would be making. Or do you hold that my picks based on research squeezed into the gaps between boiler fixings, will be better than someone who does it for a living?


I fear you're missing the point being made. By buying an index tracker you've decided not to try to pick any particular stocks.

I've been amused over the last few years watching our Vanguard global index tracker compared to our managed global fund, with all sorts of over/under weights, sectors etc. About 50% in each.

Net of all fees, they're just about equal.

So no, best to spend time pondering the meaning of life, rather than the future fortunes of individual stocks....

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Re: City of London IT vs Vanguard FTSE 100 index fund

#521200

Postby absolutezero » August 9th, 2022, 10:42 pm

Mike4 wrote:
absolutezero wrote:
Mike4 wrote:I'm noticing a general shift in preference to investing in ITs over trackers. I think this is because having a professional IT manager whose job it is to make better decisions about what companies to invest in a sector than the average spod in the street (i.e. me) can without a shedload of research, seems attractive.

It certainly is to me.

What makes you think a 'professional' manager makes better decisions than the average spod, for which, read the entire market, which consists of millions (or even billions) of people?

Keep in mind the abject failure of the overwhelming majority of managers to consistently beat the index.

Hendrik Bessimbinder (and others) have done a lot of work on this.
4% of U.S. stocks since 1926 have been responsible for 96% of the gains in the U.S. stock market.
If your manager didn't have those shares, then you will have under performed.
https://medium.com/@markgregorski/why-most-money-managers-underperform-the-market-average-8c81d1e5943f

90% of funds have lagged below their benchmark in the last 15 years.
https://www.businessinsider.com/personal-finance/investment-pros-cant-beat-the-stock-market-2020-7?r=US&IR=T

The lesson?
"Professionals" are usually worse than the index.

Some managers do beat the index, but can you identify them in advance? Probably not.
Would you stick with them in the years where they do under perform? Probably not.

The average spod is better off with a cheap global tracker.


But, but....

Surely one buys an IT to get exposure to a market sector without having to get one's hands dirty picking individual shares. e.g 'house builders, energy storage, tec. Well I do anyway.

Whatever the stats on index trackers say, a successful professional IT manager will be making better stock picks than I would be making. Or do you hold that my picks based on research squeezed into the gaps between boiler fixings, will be better than someone who does it for a living?

I think that there is no broad difference between the performance of private investors and the so-called 'professionals'.
Too much analysis can be a disadvantage.

But again, the research shows that the overwhelming majority of investors fail to beat the index.

There are more index trackers than most people realise.
They fall into the usual geographic indices - FTSE 100, S&P 500, Euro Stoxx, Nikkei etc and then there are others in just specific sectors that will passively track whatever it is you want to track.

iShares ETFs by Blackrock do a load. https://www.ishares.com/uk/individual/en/products/etf-investments?switchLocale=y&siteEntryPassthrough=true#/?productView=all&pageNumber=1&sortColumn=totalFundSizeInMillions&sortDirection=desc&dataView=keyFacts&fst=50581

You want exposure to oil, there's an oil index and there will be a tracker that follows it. The S&P 500 oil and gas tracker, SPOG for example.
UK property, there's IUKP.
UK dividends, there's IUKD.
Pharma, forestry, gold. Whatever.

Why pick individual shares or active funds that generally charge you a higher fee for not even coming level with the passive index funds?

It's taken me a long time to work my way round to this.
I only ever bought high yield dividend paying FTSE 100 shares.
Then I saw the performance of an S&P 500 tracker and kicked myself.
Though it maybe that the FTSE beats the S&P in the next few years. That's why I hold both.

A worthwhile book about passive investing is Smarter Investing by Tim Hale.

Though I can't kick the thrill of trying to beat the market but only about 20% of my portfolio is in individual companies now.
The rest in trackers and ITs.
The ITs held purely to diversify the eggs across baskets.
For example Foreign and Colonial (FCIT) is basically a more expensive version of a Vanguard Developed World ETF (VEVE). The graphs of each over the last 5 years virtually overlap!
Last edited by absolutezero on August 9th, 2022, 10:47 pm, edited 1 time in total.

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Re: City of London IT vs Vanguard FTSE 100 index fund

#521202

Postby JohnW » August 9th, 2022, 10:46 pm

There have been quite a few studies that have debunked the size of the investor failure reported by Dalbar over the years.

Could we have citations for two of them, please? What were the size of the investor failure ‘overstatements’?

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Re: City of London IT vs Vanguard FTSE 100 index fund

#521259

Postby Mike4 » August 10th, 2022, 9:21 am

absolutezero wrote:I think that there is no broad difference between the performance of private investors and the so-called 'professionals'.
Too much analysis can be a disadvantage.

But again, the research shows that the overwhelming majority of investors fail to beat the index.

There are more index trackers than most people realise.
They fall into the usual geographic indices - FTSE 100, S&P 500, Euro Stoxx, Nikkei etc and then there are others in just specific sectors that will passively track whatever it is you want to track.

iShares ETFs by Blackrock do a load. https://www.ishares.com/uk/individual/en/products/etf-investments?switchLocale=y&siteEntryPassthrough=true#/?productView=all&pageNumber=1&sortColumn=totalFundSizeInMillions&sortDirection=desc&dataView=keyFacts&fst=50581

You want exposure to oil, there's an oil index and there will be a tracker that follows it. The S&P 500 oil and gas tracker, SPOG for example.
UK property, there's IUKP.
UK dividends, there's IUKD.
Pharma, forestry, gold. Whatever.

Why pick individual shares or active funds that generally charge you a higher fee for not even coming level with the passive index funds?

It's taken me a long time to work my way round to this.
I only ever bought high yield dividend paying FTSE 100 shares.
Then I saw the performance of an S&P 500 tracker and kicked myself.
Though it maybe that the FTSE beats the S&P in the next few years. That's why I hold both.

A worthwhile book about passive investing is Smarter Investing by Tim Hale.

Though I can't kick the thrill of trying to beat the market but only about 20% of my portfolio is in individual companies now.
The rest in trackers and ITs.
The ITs held purely to diversify the eggs across baskets.
For example Foreign and Colonial (FCIT) is basically a more expensive version of a Vanguard Developed World ETF (VEVE). The graphs of each over the last 5 years virtually overlap!



Thanks for all this. As a hobby stock investor I had no idea there were indexes for each sector and trackers tracking them!

I agree with your suggestion that an amateur might well achieve much the same performance relative to a sector as a professional IT manager, but I hold that the amateur needs to be a well informed amateur, which I am not and do not have the time to become. Hence my preference for buying ITs - to get the same level of expertise I could perhaps develop myself but CBA, and instead pay the IT manager to do it for me with fewer mistakes. I recognise there are massive gaps in my own knowledge and paradoxically, your post illustrates this superbly.

I'll order Tim Hale's book, thanks.

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Re: City of London IT vs Vanguard FTSE 100 index fund

#521300

Postby absolutezero » August 10th, 2022, 11:06 am

Mike4 wrote:
Thanks for all this. As a hobby stock investor I had no idea there were indexes for each sector and trackers tracking them!


With any ETF it's worth checking what index it actually tracks and that the 'tracking error' (broadly the difference between the index and the ETF itself) - usually next to nothing.
All this is found on the information sheet from the ETF provider.

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Re: City of London IT vs Vanguard FTSE 100 index fund

#521304

Postby JohnW » August 10th, 2022, 11:09 am

agree with your suggestion that an amateur might well achieve much the same performance relative to a sector as a professional IT manager, but I hold that the amateur needs to be a well informed amateur,

But that's not what the evidence presented in the SPIVA reports shows. The biggest dullard around, without knowledge of any asset in the field, can get market returns (less costs) using a tracker of a decent index; while the average professional manager will underperform the index over short and long periods (and usually charge you more for doing so).

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Re: City of London IT vs Vanguard FTSE 100 index fund

#521305

Postby Mike4 » August 10th, 2022, 11:10 am

absolutezero wrote:
Mike4 wrote:
Thanks for all this. As a hobby stock investor I had no idea there were indexes for each sector and trackers tracking them!


With any ETF it's worth checking what index it actually tracks and that the 'tracking error' (broadly the difference between the index and the ETF itself) - usually next to nothing.
All this is found on the information sheet from the ETF provider.



ETFs!

A scary term and something I've gone out of my way to swerve so far in my investing career. "Only invest in what you (think you) understand" is one of my personal maxims. Even so I've still managed to buy one or two funds which turned out not to be what I thought I was buying!

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Re: City of London IT vs Vanguard FTSE 100 index fund

#521307

Postby absolutezero » August 10th, 2022, 11:13 am

Mike4 wrote:
absolutezero wrote:
Mike4 wrote:
Thanks for all this. As a hobby stock investor I had no idea there were indexes for each sector and trackers tracking them!


With any ETF it's worth checking what index it actually tracks and that the 'tracking error' (broadly the difference between the index and the ETF itself) - usually next to nothing.
All this is found on the information sheet from the ETF provider.



ETFs!

A scary term and something I've gone out of my way to swerve so far in my investing career. "Only invest in what you (think you) understand" is one of my personal maxims. Even so I've still managed to buy one or two funds which turned out not to be what I thought I was buying!

What's so scary about ETFs?
It's just a fund that is traded on an exchange.

For what it's worth, I only buy 'physical' ETFs rather than 'synthetic'.
Physical ETFs actually hold the shares they track.
Synthetic uses some trading voodoo to replicate the index.


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